The lacuna in Maltese company law relating to the environment, social and corporate governance (ESG) : legislative recommendations

Abstract

The emergence of environmental, social and (corporate) governance (“ESG”) considerations have been fuelled by global efforts in transforming our economy and society to one that is sustainable and prosperous for all of mankind. Companies have a key role to play in the ambitious aims of a sustainable world. By their nature, companies, are the pooling of assets, resources, and capital, and therefore are direct players in the outcome of ESG considerations. This research intends to discover the current legals gaps or lacunae that remain in ensuring the full integration of ESG into company law. Based on these lacunae, legislative recommendations will be proposed. Recently, fundamental legislative steps in ESG aimed at reorientating capital in the investment sector have taken place through Regulations and Directives adopted by the European Union. The approach undertaken remains that based on a disclosure-based method and has remained focused on this niche set of companies. In Malta, alongside the European Union’s ESG framework, different elements of ESG are regulated through external laws and regulations mostly based on a retrospective liability system which does not promote a proactive approach to ESG matters. This research highlights the current conflict that exists between company law principles based on the shareholder primacy theory and the ‘best interest of the company’ versus the duties towards other stakeholders. Based on the remaining lacunae, this research proposes for further extension of director’s duties to consider other stakeholders, enforcing effective disclosure methods and ensuring a better board composition which involves shareholder engagement.