Certifying ‘Good’ Companies: Regulatory Schemes for Corporate Sustainability in a Comparative Perspective

Abstract

While ensuring sustainability is the grand challenge of our times, nation-states are severely overstrained with this monumental task. Since the States’ legislative power is limited, the suitable design of regulatory instruments becomes crucial in order to reach sustainability aims. Market forces need to be activated in order to create incentives for companies to act sustainably. Yet it is one of the basic premises of the market economy that companies prioritise their own profits rather than the welfare of society. Against this backdrop, sustainability goals can arguably only be achieved if sustainable behaviour creates some extra benefits for corporations In fact, market actors – consumers, investors and workers alike – may have individual preferences for strong sustainability: Their decisions to buy products, to make investments or to choose workplaces often not only depend on prices, financial returns or wages, but at least potentially also on the good (or bad) behaviour of corporations, namely on their social, ethical and ecological track record. However, it is difficult for all stakeholders to measure sustainable corporate behaviour. Due to these difficulties, information asymmetries arise. Sustainable corporate behaviour therefore does not create the benefits that could otherwise be achieved. Certification schemes may help to overcome this market imperfection. If designed properly they provide a means for sustainable companies to signal their good behaviour to the market. Such signals make it easier for market actors to differentiate when making their respective market choices. While certificates for products (fair-traded coffee, for instance) are widespread and thoroughly researched, certificates for good companies have not yet drawn much academic attention, even though various certification schemes have evolved in different jurisdictions. This paper compares these different certification schemes and analyses them from a regulatory perspective. It considers whether such certificates are issued by private or by State bodies, and discusses substantive criteria and procedural arrangements of the respective certification schemes. Moreover, it analyses their legal and economic effects and compares them to similarly motivated regulatory devices such as specific legal forms for sustainable companies (like US benefit corporations) or mandatory disclosure. The main focus is on the regulatory design of certification schemes. The paper aim is to evaluate and possibly enhance such schemes’ potential as a powerful trigger for corporate sustainability.