Strampelli analyzes social and green-washing

Giovanni Strampelli, Full Professor of Bocconi University and member of RULES (Law and Economics) research unit is also the principal investigator of “Tackling social-and green-washing: is the current EU regulatory framework enough?” research project. We have asked him some questions about the project.

When have you started this research project?

The research project started in 2022

Who is funding this research project? 

Ministero Università e Ricerca (MUR) and PRIN financed within the Next Generation EU initiative are financing this project.

What are the research questions? 

In the first part of the project, we will explore ESG factors' role in managerial decisional processes and corporate governance arrangements, particularly within Italian company law and in prospective reforms at the EU level. 

The second part will analyze ESG factors' weight in investors' decisions. We will assess, in particular, whether EU financial regulation can spur sustainability by taking into account investors' preferences and, at the same time, ensure stability and investor protection.

Why have you decided to investigate this topic? 

Sustainable development has correctly become a fundamental policy goal. Most governments have already committed to reaching the 17 Sustainable Development Goals (SDGs) by 2030, but considerable private investments are necessary for a real transition towards a more sustainable economy. At the EU and national levels, initiatives have been proposed or implemented to encourage companies and financial sector operators to pursue SDGs and other specific sustainability objectives.

Against this background, a key concept is represented by ESG factors, i.e. factors related to environmental (such as climate change and pollution), social (e.g. human rights, labour conditions, gender equality) and governance (e.g. stakeholder voice, board diversity, remuneration). Our research will focus on understanding ESG factors and exploring their implications for company law and financial regulation, assessing whether the current EU regulatory approach is adequate to lead to a sustainable transition effectively.

Why this topic matters for people? 

The proposed research aims to answer how the law can help sustainable development. This Research project comprises two major lines of research: sustainable corporate governance and sustainable finance. These appear strictly interlinked since investors ground their decisions also on companies’ ESG profiles, and companies are therefore incentivized towards sustainability. Both research streams will adopt a legal and an economic point of view, studying how to facilitate companies’ transition towards more sustainable models through private investments and, therefore, contribute to SDGs achievement.

Which data are you analysing? 

Regarding the methodology, for the legal part, we will critically analyze the relevant EU and Italian law (both 'on the book' and ‘in action') and international standards and guidelines. Furthermore, comparative law analyses (involving the US and other EU countries' legal frameworks) will provide useful insights. The assessment of the emerging legal framework regarding corporate and financial sustainability governance will be enriched with a socio-legal enquiry regarding how financial intermediaries are addressing newly emerging conduct and legal risks related to sound governance of ESG factors. Finally, the enquiry will be conducted through interviews with targeted stakeholders to collect reliable data concerning consolidated practices, problems, concerns and the degree of legal awareness regarding the financial sustainability framework. Moreover, it is part of this research strategy to use new data on the effects of recent or upcoming EU law changes to identify the impact of EU-based institutional investors on the sustainability of portfolio companies. The research will use new information from the recent EU law on the transparency of voting behaviour and institutional investors' fiduciary duties. On the one hand, it will look at how institutional investors incentivize their investee companies to adopt sustainable practices, whether by portfolio choices, voting power, or both. On the other hand, it will also look at whether rules make institutional investors cater for their beneficiaries’ preferences.

The Bocconi University's unit comprises law and finance professors with specific expertise in financial markets, corporate finance, corporate governance, and antitrust. Therefore, it can address institutional investors’ engagement, and strategies- from various perspectives and adopt different methodologies (e.g. qualitative/quantitative and observational/experimental). It will help shed light on the concrete effects of shareholders' stewardship and its potential anticompetitive effects. Namely, exploiting such a composite approach, the unit will focus on institutional investors’ active ownership and making stewardship more effective. Moreover, the unit will empirically assess the impact of institutional investors’ stewardship on their portfolio companies' financial and ESG performance.

What is the state of the project at the moment? 

The project is almost complete, and a volume containing contributions from the various participants will be published shortly. Meanwhile, members of the research units have published additional articles and working papers on the subject of the research project.

Is there any conclusion that you can share regarding your research? 

Last December, the European Parliament approved the Omnibus I Directive, which introduced extensive simplifications to sustainability disclosure and due diligence rules, reducing their scope and content. While recognising the excessive complexity of European sustainable finance regulations and the consequent need for simplification, our research project believes that this should not lead to the substantial dismantling of the current legal framework for sustainable finance. Firstly, sustainability policies can contribute to the competitiveness of the European Union's development. Furthermore, excessive simplification, such as that adopted in the area of sustainability disclosure, may prejudice the interests of investors, whose investment choices increasingly take sustainability factors into account. The research project aims to identify principles for defining a European regulatory framework for sustainable finance that can reconcile the need for simplification, competitiveness and efficiency.