The Global ESG Stewardship Ecosystem

Abstract

Institutional investors are increasingly pushing their investee companies to address environmental, social and governance (ESG) issues—a phenomenon commonly called ESG stewardship. Scholars have put forward various reasons for investors’ enthusiasm for ESG stewardship. They include the financial materiality of ESG issues, a desire to appeal to ESG-conscious customers, and the scope for fund operators to charge higher fees for funds that pursue ESG strategies. There is, however, another critical factor at play. ESG stewardship is also underpinned by a transnational development—what this article calls the ‘global ESG stewardship ecosystem’. This global ecosystem is comprised of various ESG-focused actors, including United Nations agencies, institutional investors, investor networks, service providers to institutional investors, and NGOs and activist organizations. These actors operate in a highly networked manner at the transnational level to develop and disseminate norms of ESG stewardship throughout global markets, and encourage and coordinate investors’ ESG stewardship activities on the ground. This article highlights the scale, complexity and influence of the global ESG stewardship ecosystem, revealing it to be a significant facilitator of institutional investors’ ESG stewardship. This insight calls into question important contemporary assumptions and theories about institutional investors, including claims that they are ‘rationally reticent’, under-invest in corporate governance activities, and are incapable of overcoming collective action challenges. The global ESG stewardship ecosystem is also a remarkable example of the transnational influences shaping contemporary corporate governance. The ecosystem underpins the development and dissemination of norms of ESG stewardship and also assists institutional investors to undertake ESG stewardship ‘on the ground’ in the various markets in which they operate. The transnational influence of the ecosystem has important implications for national law makers and regulators who are focused on ESG investing and investor participation in public company corporate governance.