Journal of Law and Political Economy

Global warming not only poses an existential problem for humans and the natural world, but also a fundamental challenge for businesses and the laws governing them. While only a few years ago, the climate crisis was considered separate from—even irrelevant to—corporate and securities law, it is now an urgent subject in both fields. In this special issue of the Journal of Law and Political Economy, we present new research at the intersection of corporate and securities law and climate change. If, going forward, business and securities law evolves to ignore global warming’s risks for businesses and markets, this result will reveal the fields’ politicized, ideological parameters, not global warming’s irrelevance to them.

This article discusses the Orwellian nature of the current debate about the role of climate change in corporate governance, by juxtaposing the arguments of climate-denying commentators about corporate governance against the objective facts. Settled law allows corporations and institutional investors to take into account risk factors like climate change and may require them to consider those risks when they are directly material, as climate change is for many industries. If anything, the corporate response to climate change has been too tepid, and the pace of climate change and its corresponding harm is outrunning efforts to constrain it.

No simple answer exists to addressing the dangers this Orwellian manipulation creates. But identifying that behavior and holding political elites responsible for a basic acceptance of fact and for consistently applying their stated principles is a necessary start.

This article addresses an unexplored problem in the externalities literature: the present value of future externalities. The problem arises because externalized costs and benefits occur in the future, and therefore should be discounted, yet discount rates used by corporate decision-makers are typically higher than the appropriate social discount rate.

In simple terms, corporations discount the future too much, and therefore underproduce potential future benefits and overproduce potential future costs. Our key insight is that the impact of high corporate discount rates, relative to the socially appropriate discount rate, is an additional externality. We refer to the additional costs that arise when corporations use higher-than-optimal discount rates as “the externality of discounted externalities.”

Policy makers should take into account the difference between corporate and social discount rates. Regulators and courts that seek to incentivize corporations to make decisions about the future in socially optimal ways should not ignore the externality of discounted externalities.

Sustainable debt financing has exploded in recent years, growing from $29 billion in new debt issuances in 2013 to $1 trillion in new issuances in 2023. The continued success of the sustainable finance movement will depend on issuers’ motivations to engage in sustainable finance. This essay investigates the justifications for sustainable finance through a hand-collected dataset of disclosures made by green, social, and sustainability bond issuers. Review of these disclosures reveals that material legal, physical, and regulatory risks sometimes impact these issuers, but that these risks are not identified as motivations for engagement in sustainable finance. Instead, issuers appear to be motivated by shareholder pressures and a desire to enhance the green, socially engaged, or sustainable nature of their corporate brand.

The United States lags far behind its counterparts regarding regulation on ESG investing. Part of this delay stems from a perceived “ESG backlash,” which has contributed to the SEC’s reluctance to require industry to disclose ESG practices. The regulatory landscape has now shifted, with the SEC proposing two ESG-centric rules—the ESG Fund Disclosure Rule and the ESG Names Rule.

The system of disclosure for public companies no longer meets the needs of investors and other stakeholders. Largely put in place by the Securities and Exchange Commission in 1982, the principles underlying the system have failed to keep pace with shifts in the market and dramatic changes in technology. The system requires a paradigm shift and fundamental alterations in the principles underlying the approach to disclosure. The shift must include the integration of comparative data, the expansion of the categories subject to mandatory disclosure, and the disaggregation of financial statements. Failure to update the system of disclosure will result in investors increasingly relying on sources of information outside of the periodic reporting process, reducing the importance of required disclosure and the role of the Securities and Exchange Commission.

Directors’ fiduciary duties in Canada include an obligation to identify and oversee management of the company’s climate-related risks and opportunities. The precise contours of these obligations need further articulation. Internationally adopted financial disclosure accounting standards and green and transition finance taxonomies help to clarify the reasonable expectations of regulators, investors, creditors, and other stakeholders in respect of directors’ specific duties to achieve climate financial resilience and transition the company to net-zero carbon emissions.

The European Union’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) represent transformative developments in global ESG regulation. These ambitious mandates, core to the EU’s European Green Deal, impose significant environmental and human rights obligations not only on EU companies but also on thousands of non-EU firms—including US companies—with operations or business ties within the bloc. This article explores the implications of these directives for US firms and policymakers, emphasizing their extraterritorial scope and normative ambition. Unlike US law, which is mired in debates over financial materiality and limited by anti-regulatory sentiment and anti-majoritarian structural constraints, the EU directives adopt sustainability as a stand-alone legal goal. These directives position the EU as a de facto global ESG standard-setter, displacing the influence of US corporate governance-based reforms. The Article argues that the EU’s uniform, binding rules offer a more effective and democratic pathway to sustainability than shareholder-driven approaches in the United States, which rely on inconsistent support from mutual funds and only impact public companies. Ultimately, EU leadership in ESG regulation may better reflect the values of the American public than domestic lawmaking currently can, given political dysfunction and regulatory stagnation in the US.

The long-awaited European Supply Chain Act, known as the EU Corporate Sustainability Due Diligence Directive (CSDDD), entered into force on July 25, 2024, has been criticized as a missed opportunity to advance more impactful protections for vulnerable stakeholders of global value chain capitalism. Concluding a lengthy, contested legislative process, the Directive’s adoption reflects the diverse trends that make up global value chain (GVC) governance today: disclosure legislation, international soft law, and private actors’ corporate sustainability codes of conduct. Despite an abundance of norms, egregious human and environmental rights violations in and around GVCs persist, and devastating factory accidents, worker deaths, and exploitation along with irreparable harm to lands and water continue. This article assesses the prevailing regulatory approach against the background of deeply rooted accounting and discounting methods that discourage actors from adopting substantial—and costly—measures today with a view to long-term benefits.