Thomas Piketty has been described as the economist with the most influential publications in a generation. His research on inequality has spurred both praise and controversy, especially his best-selling work Capital in the Twenty-First Century (2013). Last year, Piketty published the essay Nature, culture et inégalités: une perspective comparative et historique. Its English translation, Nature, Culture and Inequality: a Comparative and Historical Perspective, will be published in September 2024.
Piketty’s work prompts us to think of sustainability in inequality terms and how the law can contribute to achieving distributive justice. Tackling this challenge from the perspective of corporate law, two issues in the essay are especially relevant: the impact of transparency and disclosure obligations, and potential reforms of corporate governance models.
The foundational challenge of distributive justice in sustainability law
The landmark example to understand inequality in sustainability is CO2 emissions. One per cent of the global population is responsible for more CO2 emissions than 50 per cent of the global population. CO2 emissions also present vast differences depending on the countries, with certain regions responsible for a large share of the problem.
Indeed, in countries like the United States, the population in the bottom 50 per cent by income group is already in line with the Paris Agreement 2030 targets. The figures below from the 2022 World Inequality Report display the inequalities by region and by income group.
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Considering such unequal landscape, should laws be enacted and interpreted to promote the same sustainability efforts for the full population? For instance, a tax on oil and gas which increases energy costs might be an inadequate policy if done in isolation. The policy requires equal efforts, instead of requiring efforts to the minority mostly responsible for the excess of CO2 emissions.
Piketty offers potential solutions such as a progressive wealth tax related to the level of pollution or the British Columbia carbon tax scheme where part of the revenue collected compensated low and middle-income consumers through direct cash transfers.
For lawyers, the main takeaway is to consider the unequal socioeconomic effects of different avenues for the sustainability transition, before arguing for or against specific legislative measures. The complexity of the topic likely discourages judicial activism on this front due to their lack of economic expertise and their inability to introduce redistribution policies in parallel. The legislative process can more deeply study economic effects, enact concurrent policies if necessary, and enjoy more democratic legitimacy and participation.
Corporate law can provide concrete solutions to the distributive dilemma in the sustainability transition. In Piketty’s work, we can find two proposals where corporate law, rather than taxation or other redistributive policies, would be relevant. The first one is related to transparency and disclosure obligations. The second one aims to improve corporate governance.
The initial steps of transparency and hope in disclosure obligations
Data is powerful. Piketty highlights the French registry on inheritance and properties, created after the French Revolution that helped debunk the myth that France was a country of small owners. The data also helped the French Congress to establish a progressive taxation scheme. Similarly, Sweden has a detailed registry of income and property wealth which was later useful in improving their tax scheme throughout the 20th century and to fight inequality. Besides helping to inform redistribution policies, data also enables research and accurate academic discussion.
Data is also key to sustainability. Piketty draws a parallel between wealth data and carbon data. Recording accurate and transparent data on carbon emissions is a first fundamental step towards better research and policy-making on climate action, realising the unequal rates of pollution of different actors.
Piketty does not expressly address the Corporate Sustainability Reporting Directive, ESG ratings and taxonomy efforts at the EU level, but they exemplify the importance of disclosure obligations. Data informs green investments and helps academia and policymakers to understand the sources and inequalities of CO2 emissions and other unsustainable behaviours more deeply. Eventually, sustainability data of adequate quality can help to make progress towards corporate accountability, and hopefully initiate a cascade effect where investors and consumer influence companies, which influence their supply chain, and in turn positively influence their larger community in a just and equal transition.
An additional solution through an improved corporate governance model
Transparency and disclosure obligations might not be enough. There are calls for more profound changes in corporate law, particularly on corporate governance. Piketty praises Germany, where workers have up to 50 per cent of the voting rights in certain industries. Additionally, Piketty suggests that prohibitions could be introduced to impede a single shareholder to have more than ten per cent of the voting rights, despite no jurisdiction having yet experimented with such a measure. Piketty does not address the consequences of this limit on state-owned enterprises or workers’ voting rights, but for coherency purposes the proposal likely refers to private investors only.
Piketty thus implicitly states that diluting shareholder power in favour of workers and preventing unilateral control of corporations would diminish the importance of maximizing shareholder value and provide sustainable corporate purpose.
Piketty’s proposals might be weak or of doubtful efficacy when compared to other measures in the corporate law debate. For instance, Professor Beate Sjåfjell has argued in favour of mandatory sustainability due diligence as a corporate duty and a duty for the board, understood as a duty to create ‘sustainable value within planetary boundaries’. At the EU level, the proposed Corporate Sustainability Due Diligence Directive is part of this debate.
Other sustainability reforms of corporate law are already implemented in the EU. For example, in Spain, where Professor Pilar Perales has explained legal reforms on long-term interests in management, disclosure obligations and remuneration incentives linked to ESG factors, with an impact yet to be seen given its recent adoption.
These more nuanced proposals of corporate law reform seem more effective. Piketty’s proposal might have impact on other areas, but an alleged democratisation of corporations does not necessarily equate to a management shift towards sustainable value. Other institutions run democratically, like governments, have failed to tackle the climate crisis; while some corporations under traditional corporate governance models, like institutional investors, have demonstrated pro-sustainability investment at least to address systematic risks and despite room for improvement. Thus, corporate law measures addressing directly and expressly sustainability seem a preferable alternative.
Not all corporate law reforms are created equal
Sustainability is also a tale about inequality. Piketty brings added value to the discussion through his empirical research on the distribute justice dilemma present in climate crisis. Corporate law can contribute to a just sustainability transition through disclosure obligations and a reform of corporate governance. Piketty provides excellent illustrations on how transparency obligations can set the foundation for change, creating hope for ESG disclosure rules. In contrast, his corporate governance reform proposals might not be as powerful, and corporate law initiatives which tackle sustainability directly are preferrable. Piketty’s latest ideas are a reminder that not all pro-sustainability legal reforms are just. Instead, corporate law experts should provide answers to the climate crisis which provide both efficacy and distributive justice.