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How ESG is weakening the business judgement rule

In: Research Handbook on Environmental, Social and Corporate Governance

Author

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  • Thilo Kuntz

Abstract

This chapter argues that, contrary to what many believe, the BJR is weakening in correlation to the growth of ESG-related positive legal norms, not strengthened. ESG encroaches on the fiduciary relationship of the directors through the duty not to breach any positive law the corporation has to uphold. As a result, international and transnational ESG standards increasingly overlay or modify national and state fiduciary law. Compliance and oversight duties operate as amplifiers. Accordingly, the expanding body of ESG norms has the effect of a two-prong attack on the BJR. Directors operate under the fiduciary obligation to act within the law and must install a compliance system that keeps pace with the accelerating growth of ESG. If they fail, the board members cannot avail themselves of the protection of the BJR. Heightened ESG standards correlate with a more demanding duty of loyalty, resulting in a proportional weakening of the BJR.

Suggested Citation

  • Thilo Kuntz, 2024. "How ESG is weakening the business judgement rule," Chapters, in: Thilo Kuntz (ed.), Research Handbook on Environmental, Social and Corporate Governance, chapter 3, pages 67-94, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:21010_3
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    File URL: https://www.elgaronline.com/doi/10.4337/9781802202533.00011
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