Governing the Energy Transition: The Role of Corporate Law Tools

Abstract

Conventionally the private sector has been considered a barrier to effective energy transition governance. However, in the wake of the 2015 Paris Agreement, a range of international initiatives have emerged that focus on enhancing the positive role of the private sector in energy transition governance. These developments reinforce a gradual international shift in the business community to view climate change in financial risk terms. Climate change seen as a matter of financial risk for corporations, and for the large institutional investors who invest in them, has the potential to engage corporate law tools, such as requirements for risk disclosure, shareholder actions and the fiduciary duties of company directors. This article explores the potential, and limitations, of such corporate law tools to drive private sector action on sustainable energy transition. The article draws on empirical research examining business perceptions and practices relating to climate risk management and promotion of clean energy sources. Although there are promising signs of a more serious consideration of climate risk in business decision-making, corporate practices around climate risk disclosure, and shareholder and board engagement with clean energy issues, remain highly variable and in flux. If corporate law tools are to make a more substantial contribution to energy transition governance, they will likely need to be complemented by a robust regulatory framework for greenhouse gas emissions reduction.

Keywords: energy transition, climate change, private sector governance, corporate law tools, disclosure, fiduciary duties, shareholders

JEL Classification: K22, K32