ESG & Caremark: Shareholders Might Lack Adequate Tools to Voice ESG Concerns and to Hold Boards of Directors Accountable for ESG Oversight

Authors

Meryl Roux Jimenez, University of Miami School of Law

Document Type

Notes and Comments

Abstract

Environmental, Social, and Government (“ESG”) practices are no longer an area that corporations can ignore. A corporation’s failure to oversee an ESG risk can lead to a reputational scandal for the company, which, ultimately, hurts shareholders. The only primary legal recourse for shareholders to hold a board of directors accountable—for breaching its fiduciary duty to oversee a risk— is to bring a Caremark action in court. While most Caremark actions have proved favorable to shareholders in the past two decades, it is an imperfect and reactive framework for ESG related claims. Corporations are pulled in two opposite directions: maximizing shareholders’ interests—a byproduct of the shareholder primacy rule—and meeting the ever-increasing market pressures to pay attention to ESG risks. Shareholders, on the other hand, want to express their ESG concerns to corporations in a proactive way. The tools that shareholders have access to, however, might not be sufficiently adequate to do so. This Note argues that the shareholder primacy theory, a longstanding pillar of corporate governance, frustrates the ability for shareholders—the very group of people that it was meant to protect—from holding boards of directors accountable when there is a failure to oversee an ESG risk.

Recommended Citation

Meryl Roux Jimenez, ESG & Caremark: Shareholders Might Lack Adequate Tools to Voice ESG Concerns and to Hold Boards of Directors Accountable for ESG Oversight, 32 U. MIA Bus. L. Rev. 220 (2024)
Available at: https://repository.law.miami.edu/umblr/vol32/iss2/5