Stewardship and ESG in Europe

Three main legal strategies are used globally to pursue ESG stewardship: stewardship codes, disclosure regulation, and fiduciary duties. In this paper, we compare these strategies focussing on the EU approach to ESG stewardship, which is mainly based on regulation.  In section II, we introduce the three strategies from a comparative perspective. We briefly analyse the origins and practice of stewardship codes and present the main EU regulatory measures concerning ESG stewardship that we further examine throughout the paper. In section III, we analyse the extent to which institutional investors are incentivized by EU disclosure regulation to take ESG matters into account when investing in corporate securities. To this end, we analyse the integration of sustainability risks in investment decisions and the recourse to impact investing under the Sustainable Finance Disclosure Regulation (SFDR). Moreover, we consider how institutional investors classify their investments in practice based on the relevance attributed to ESG considerations and summarize the criteria followed by them and their asset managers in the selection of investments from an ESG perspective. Furthermore, we examine what type of information issuers make available to investors about their ESG profile through the non-financial disclosure required from them under EU harmonized requirements. Finally, we examine the Commission Delegated Directives and Regulations on fiduciary duties and sustainability and draw some conclusions on institutional investors’ incentives to analyse ESG data and preferences and take investment decisions based on them. In section IV, we focus on investor engagement in ESG matters and ask whether EU regulation in this area will enhance the incentives to engage. In section V, we draw some general conclusions.