Daily Archives: Thursday, July 29, 2021

Remarks by Chair Gensler Before the Principles for Responsible Investment “Climate and Global Financial Markets” Webinar

Posted by Gary Gensler, U.S. Securities and Exchange Commission, on
Thursday, July 29, 2021
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Gary Gensler is Chair of the U.S. Securities and Exchange Commission. This post is based on his recent remarks before the Principles for Responsible Investment “Climate and Global Financial Markets” Webinar. The views expressed in the post are those of Chair Gensler, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.

Thank you, Fiona, for the kind introduction. It’s good to be here with the Principles for Responsible Investment. As is customary, I’d like to note my views are my own, and I’m not speaking on behalf of the Commission or the SEC’s staff.

So what does the SEC have to do with climate?

Before we get to the main event—on climate and finance—I’d like to discuss something a lot of us are watching these days: the Olympics.

In the Olympics, there are rules by which we measure an athlete’s performance.

In gymnastics, for example, the scoring system is both quantitative and qualitative. Athletes are evaluated based on the numeric difficulty of the skills and the judges’ qualitative impression of how well they perform those skills.

This system brings comparability to evaluating the athletes across performances or across generations.

Another thing about the Olympics is that the sports change over the years. If the organizers never made any changes, we’d only get to watch the events from the first modern Olympics back in 1896. [1] No soccer, no basketball, no women’s sports. That wouldn’t exactly reflect where sports are today.

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Does Socially Responsible Investing Change Firm Behavior?

Posted by Daniele Macciocchi (University of Miami), on
Thursday, July 29, 2021
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Daniele Macciocchi is Assistant Professor of Accounting at University of Miami Herbert Business School. This post is based on a recent paper by Mr. Macciocchi; Davidson Heath, Assistant Professor of Finance at the University of Utah Eccles School of Business; Roni Michaely, professor of Finance and Entrepreneurship at The University of Hong Kong; and Matthew Ringgenberg, Associate Professor of Finance at the University of Utah Eccles School of Business. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); Companies Should Maximize Shareholder Welfare Not Market Value by Oliver Hart and Luigi Zingales (discussed on the Forum here); and Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee by Max M. Schanzenbach and Robert H. Sitkoff (discussed on the Forum here).

Over the last decade, investors have shown a growing appetite for socially responsible investing (SRI). SRI funds, who advertise that they care about environmental and social issues in addition to maximizing returns, have more than doubled their assets under management. This trend is consistent with the proposals of some academics (e.g. Bérnabou and Tirole (2010) and Hart and Zingales (2017)) that corporations should seek to maximize shareholder welfare and that SRI funds should play a role in addressing environmental and social issues. Whether this approach can increase social welfare is an issue of heated debate in the literature (see, for example, Bebchuk and Tallarita, 2021).

One important aspect of this debate is how effective SRI funds are at bringing about environmental and social change. SRI funds have an official mandate in their prospectus to promote and implement socially responsible objectives. Further, these funds often advertise themselves as having environmental and social goals and in many cases the fund’s name alludes to these goals. As a result, investors in these funds expect them to improve corporate conduct (Levine, 2021). On the other hand, it may be costly for funds to change corporate behavior. First, monitoring corporate conduct is, itself, costly. Second, investing in accordance with environmental and social goals may actually cause the fund to earn lower returns by constraining the fund’s investment universe. These opposing forces make it unclear, ex-ante, what SRI funds actually do. There are several possibilities: (1) SRI funds might choose firms with better environmental and social conduct; (2) SRI funds might actively work to improve the environmental and social conduct of the companies in their portfolio; or (3) SRI funds might greenwash. Put differently, they might advertise and promote themselves as SRI but de facto do nothing (or close to nothing). Most SRI funds claim they both select ‘good’ firms and push firms to consider environmental and social goals more favorably; however, to date, there is little empirical evidence on this.

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Delaware Supreme Court’s Response to Chancery for Turning Away Stockholder’s Claims

Posted by Jason M. Halper, Jared Stanisci, and Victor Bieger, Cadwalader, Wickersham & Taft LLP, on
Thursday, July 29, 2021
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Jason M. Halper and Jared Stanisci are partners and Victor Bieger is an associate at Cadwalader, Wickersham & Taft LLP. This post is based on a Cadwalader memorandum by Mr. Halper, Mr. Stanisci, Mr. Bieger, and Annika Conrad, and is part of the Delaware law series; links to other posts in the series are available here.

Despite being one of the more well-known doctrines in corporate law, the rule articulated in Blasius [1]—that directors who act with the primary purpose of interfering with a stockholder vote must have a compelling justification for their conduct—has received little attention from the Delaware Supreme Court. Delaware’s highest court has not mentioned the Blasius test in over a decade [2] and has not held that a board’s conduct triggered the Blasius test since 2003. [3]

During those intervening years, Blasius has been questioned, diluted, and declared all but subsumed by other doctrines. As one vice chancellor put it, a consensus has taken root that “Blasius ‘ main role, to the extent it has one, is as a specific iteration of the intermediate standard of review laid out in Unocal.” [4]

That view of Blasius may change with the Delaware Supreme Court’s recent decision in Coster v. UIP Companies, [5] which sent a case back to the Court of Chancery for giving Blasius short shrift. Coster arose out of a dispute between the two 50% owners of a real estate investment company. After the two stockholders deadlocked on a director election, one of the stockholders—who was already on the board—proposed a dilutive stock sale to one of his fellow incumbent directors, which the board ultimately approved. The stock sale diluted the outside stockholder’s shares below 50%, breaking the deadlock.

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