Fiduciary duty for directors and managers in the light of anti-ESG sentiment: an analysis of Delaware Law

The global rise in ESG regulations, particularly in Europe, is impacting businesses worldwide. Research grows on a positive correlation between ESG and corporate performance, and 2023 constitutes a turning point marked by a backlash in the U.S. This has prompted a reassessment of sustainability strategies and raised concerns about potential conflicts with the fiduciary duties of directors and portfolio managers. This paper explores the tension between ESG and shareholder primacy under Delaware law, which is home to 66% of Fortune 500 companies. It is a contribution to the theories of shareholder primacy and corporate governance with the most up-to-date evidence, at the intersection of law, economics and finance. Although Delaware courts have not specifically approached the liability extent of directors and asset managers in ESG-related decisions, they have established the elements of the fiduciary duties of care and loyalty, which can be applied to ESG-aligned decisions. This paper highlights guidelines for directors, portfolio managers and fiduciaries when making ESG-aligned decisions, in particular the careful documentation of the process followed in reaching a decision. The paper also calls for more rigour in the field of sustainability.