Corporate law should explicitly include responsibilities for boards to assess how their strategies impact society and environment, according to a group of academics. The call for a new form of governance comes after the group’s observation that a “paradigm shift” in what the public and policymakers expects of companies.

A group of 15 academics—including Colin Mayer of Oxford University, one of the UK’s foremost governance experts—from across Europe, Scandinavia and the UK, write that laws should make clear that board duties go “beyond their traditional role of representing shareholders’ interests in pursuit of the company’s overall welfare”.

The duties should mean, they add, that pursuing a company’s interests should mean a board “creates sustainable value and contributes to mitigating pressures on planetary boundaries”.

The intervention comes at a moment when there is growing controversy over the integration of “ESG” principles into investment decisions, with widespread condemnation of the concept as easily exploited by investment managers.

ESG has also been dragged into politics, with campaigners on the right in the US calling ESG, and particularly climate change policies, “woke”.

The UK’s prime minister, Rishi Sunak, has also made tentative steps to politicise climate change, with moves to delay key targets. These include pushing back the ban on new petrol and diesel cars from 2030 to 2035, and postponing the phase-out of new gas boilers from 2026 to 2035.

Greater expectations

The academics argue, however, that a “paradigm shift” in society’s expectations of companies has taken place “demanding their involvement in pressing environmental challenges (such as climate change and biodiversity loss) and addressing social inequalities”.

This new era means “it is crucial for governance structures to evolve and become more sophisticated.

“Merely incorporating some environmental, social and governance (ESG) concerns into strategic discourse is no longer sufficient.

“The question at hand is not about whether ESG measures enhance profitability, but rather about how corporations can adapt and thrive in a more uncertain and volatile world, and do so in a way that contributes to societal sustainability goals.”

Boards are not the only governance element in need of change, according to the group. They lay out a set of new principles for governance, underpinned by setting out a “corporate purpose.”

This reflects conclusions drawn by Colin Mayer for work commissioned by the British Academy: that purpose is the “expression of the means by which a business can contribute solutions to societal and environmental problems. Corporate purpose should create value for both shareholders and stakeholders.”

The principles recognise an increased responsibility for boards and a belief that “fair sharing” apply to the way a board distributes the “value” from its activities.

The group also calls for employees to have a “voice in corporate governance matters”.

The paper touches on many evolving issues but, more than anything, paints a picture of governance having reached a point of transition, forced to adapt to the increasing responsibility placed on boards. This is a key debate as companies grapple with a world beset by conflict and historic change.