Abstract
Business, and the dominant legal form of business, that is, the corporation, must be involved in the transition to sustainability, if we are to succeed in securing a safe and just space for humanity. The corporate board has a crucial role in determining the strategy and the direction of the corporation. However, currently, the function of the corporate board is constrained through the social norm of shareholder primacy, reinforced through the intermediary structures of capital markets. This article argues that an EU law reform is key to integrating sustainability into mainstream corporate governance, into the corporate purpose and the core duties of the corporate board, to change corporations from within. While previous attempts at harmonizing core corporate law at the EU level have failed, there are now several drivers for reform that may facilitate a change, including the EU Commission’s increased emphasis on sustainability. Drawing on this momentum, this article presents a proposal to reform corporate purpose and duties of the board, based on the results of the EU-funded research project, Sustainable Market Actors for Responsible Trade (SMART, 2016–2020). Keywords: corporate purpose; corporate boards; sustainability; due diligence; planetary boundaries; social foundation; climate change; human rights; EU company law; EU Green Deal; EU Sustainable Finance Initiative.
Highlights
The COVID-19 pandemic illustrates how everything is connected to everything else [1], and that the stakes with continued unsustainability are high
I outline what is encompassed in the definition of sustainability as securing the social foundation for humanity and in the future while staying within planetary boundaries, and how this can be translated for business into sustainable value creation within planetary boundaries
Positioning sustainable value creation within planetary boundaries, and translating this concept into company law and thereby into corporate governance has the potential of significance on three interconnected levels: Firstly and most importantly, it brings to the forefront that there are ecological limits [12,13]
Summary
The COVID-19 pandemic illustrates how everything is connected to everything else [1], and that the stakes with continued unsustainability are high. I outline what is encompassed in the definition of sustainability as securing the social foundation for humanity and in the future while staying within planetary boundaries, and how this can be translated for business into sustainable value creation within planetary boundaries. This includes the highly topical issues of mitigating climate change and respecting human rights, but it is not limited to these issues. The results, and the SMART Project analysis that this article draws on [18], are relevant to and encompass any form for doing business, independent of its legal form and size [18,19]
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