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ESG, Sustainability Disclosure, and Institutional Investor Stewardship


Giovanni Strampelli


May 13, 2024

This Article sheds new light on the link between sustainability disclosure and institutional investors’ stewardship activities aimed at promoting improvements in the ESG performance of investee companies. On the one hand, sustainability disclosure is one of the information elements that may be relevant to institutional investors’ stewardship activities. On the other hand, improving the quality of sustainability reports provided by investee companies is often the ultimate goal of investor engagement initiatives. The role of climate and social disclosure is problematic from both perspectives. First, institutional investors, especially those with broadly diversified portfolios, are unable to use sustainability information directly and rely on ESG ratings and indices for their investment and stewardship strategies due to the very high costs involved. Therefore, in addition to the fact that the regulatory framework still appears to be fragmented and that there are differences between different sets of sustainability disclosures, European legislation shows that it is not enough to provide for climate and social disclosure requirements and that regulation of ESG ratings and indices is essential to make them more transparent and reliable. Second, the decision by non‑activist institutional investors to focus part of their engagement initiatives on sustainability disclosure, for example by requiring a higher degree of transparency or the adoption of a particular reporting framework, appears to be dictated by a desire to avoid more intrusive (and perceived as more aggressive) initiatives aimed directly at encouraging changes in the environmental strategies or policies of the companies concerned.


Giovanni Strampelli, ESG, Sustainability Disclosure, and Institutional Investor Stewardship, 81 Wash. & Lee L. Rev. Online 405 (2024).