The risk of environmental damage: a corporate governance perspective

Abstract

Within the legal framework of European for-profit companies, this paper examines the role that corporate law can play in preventing environmental damages. It begins with an analysis of the main 'benefits' and 'costs' that corporate directors consider when engaging in environmental risk management: improving business reputation to attract sensitive consumers and investors, and accessing green financing or green public procurement, on the one side; the risk of liability lawsuits, higher costs of credit, a decrease of stock market price and an increase of insurance premiums, on the other side. The paper then turns to the internal dynamics of corporations, developing three different categories of environmental risks and related different corporate attitudes. On the basis of this tripartition, the paper suggests specific corporate governance mechanisms that can be adopted to manage the risk of environmental damages in a more effective, and less costly, manner.