Evolution, Logic, and Implementation of ESG

Zheng Shaohua, Wang Hui

Journal of Shanghai University of Finance and Economics Vol. 26, Issue 04, pp. 124 - 138 (2024)  DOI:10.16538/j.cnki.jsufe.2024.04.009

Summary

ESG has become a highly scrutinized corporate governance issue by policymakers and academia in recent years. While ESG can be traced back to early corporate social responsibility, which posits that corporate activities should not solely prioritize profit, it differs significantly from traditional CSR. CSR largely serves shareholder-centric business strategies, whereas ESG aims to mitigate shareholder primacy itself. Historically, ESG has faced strong opposition from investors who view it as a costly ethical imposition on companies. However, investors are gradually accepting and even promoting ESG today. Investors have shifted from opposing ESG to embracing it, driven by deep economic, political, and other logics. From an economic perspective, ESG should not be seen as an external burden imposed on companies but rather as a critical mechanism for sustainable profitability. Politically, ESG can provide companies with robust governmental support. Current corporate governance and its institutional design are products of the shareholder primacy principle and do not adequately match the practical needs of corporate governance in the ESG context. To ensure that ESG can effectively fulfill its positive functions in corporate governance, responsive reforms in corporate law should be made in terms of corporate structure and information disclosure. Regarding corporate governance structure reform, existing board committee structures should be reformed to appoint a suitable board committee responsible for implementing ESG, with ESG explicitly defined as a legal duty of board members. In terms of information disclosure, a suitable ESG information disclosure mode should be chosen to ensure timely and accurate disclosure of information while achieving uniformity in ESG information disclosure methods. Finally, actively implementing ESG litigation systems can prevent improper manipulation of ESG by company managers.

Keywords

ESG; evolutionary logic; corporate structure; director duties; information disclosure; litigation