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International Developments

Latham & Watkins Discusses 10 ESG Issues to Keep Top of Mind in 2023

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Both anticipated and less expected changes occurred across the ESG landscape in 2022. Anticipated changes included regulatory developments across the globe, including in the US, the UK, and the EU. Less expected changes included global and regional political shifts, such as the fallout from the Russian invasion of Ukraine, the continued evolution of governmental policies following the COVID-19 pandemic (such as responses to labor market challenges and reshoring efforts), and growing political tensions throughout the world.

In 2023, investors, customers, regulators, and other key stakeholders are expected to continue to demand corporate responsiveness on ESG issues. However, how these stakeholders … Read more

Davis Polk Discusses Antitrust Law and ESG Initiatives

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In the U.S., some members of Congress and state AGs have advocated for greater antitrust scrutiny of industry-wide ESG initiatives, while other state AGs have argued that such initiatives are procompetitive. In the EU and the U.K., competition authorities have issued guidance to support industry-wide ESG initiatives. In this environment, firms contemplating joining ESG initiatives should seek advice to understand the global antitrust landscape.

Antitrust and ESG: New developments and key issues

Firms routinely incorporate environmental, social, and governance (ESG) goals as part of normal corporate operations. In the U.S., some federal and state elected officials and enforcement officials recently … Read more

From “Corporate Social Responsibility” to “Corporate Social Liability”?

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The debate about corporate social responsibility has recently moved into new territory: the establishment of what can be called corporate social liability or CSL. CSL goes beyond classic tort and company law and may result in vicarious liability of parent companies for the misconduct of subsidiaries and third-party business partners. Its main focus has been on violations of obligations involving human rights and the environment. In a recent paper, I assess the novel elements of international developments involving CSL.

Various legislative actions and court cases, particularly in Europe, have contributed to the emergence of CSL:

  • The EU Council and

… Read more

How Board Gender Quotas Affect Stock Prices

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Women have traditionally suffered from discrimination in the labor market (Tatli et al., 2013) and are under-represented in upper management (Thams, Bendell and Terjesen, 2018). To address this widespread gender imbalance, many countries have implemented gender diversity policies ranging from enforceable quotas with hard or soft sanctions to voluntary recommendations included in corporate governance codes. While multiple European Union (EU) member states developed their own legislation, the European Parliament introduce on June 7 a gender quota so that, by 2026, “at least 40% of non-executive director posts or 33% of all director posts are occupied by the under-represented sex… Read more

Debevoise & Plimpton Discusses the EU AI Liability Directive’s Impact on Artificial Intelligence Legal Risks

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On September 28, 2022, the European Commission released a proposal to change the legal landscape for companies developing and implementing artificial intelligence in EU Member States. This AI Liability Directive would require Member States to implement rules that would significantly lower evidentiary hurdles for victims injured by AI-related products or services to bring civil liability claims. Most importantly, the Directive would create a “presumption of causality” against the AI system’s developer, provider, or user.

The proposed AI Liability Directive should be seen as part of a broader package of EU legal reforms aimed at regulating AI and other emerging technologies. … Read more

SEC Investment Management Chief Speaks on Regulation Outside the U.S.

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Good morning.  Thank you, Mark, for your kind invitation to speak with you all today – and congratulations on the 25th anniversary of this conference.  I am deeply honored to be giving the Scott Friestad Memorial Keynote address, particularly since we are joined today by his son, Wilson.  Thank you, Wilson, for your gracious introduction.

Although my time at the SEC began after Scott’s passing, Scott’s diligence, excellence, and commitment to public service continue to resonate within the agency today.  Indeed, I see those traits in the colleagues by whom I’m inspired every day in the Division of Investment

… Read more

Sullivan & Cromwell Discusses Expiration of Legacy NAFTA Investor Protections

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In 2020, the United States-Mexico-Canada Agreement (“USMCA”) entered into force, replacing the 1994 North American Free Trade Agreement (“NAFTA”).  Both treaties include certain protections that the contracting states must afford to nationals of the other contracting states investing in their territory, and provide for arbitration as a forum to recover losses from breaches of those protections.  However, USMCA contains additional limitations and restrictions on foreign investors’ rights to pursue claims in arbitration for breach of the treaty’s terms.  Under Annex 14-C of USMCA, claims related to foreign investments established or acquired while NAFTA was in place (so-called “Legacy Investments”) may … Read more

The Global ESG Stewardship Ecosystem

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In a recent working paper, we highlight a significant transnational dimension to a remarkable corporate governance development: the dramatic increase in attempts by institutional investors to influence how the companies they invest in address material environmental, social, and governance (ESG) concerns. This form of investor action (or “stewardship” as it is often called) is increasingly common in many markets across the globe.

Scholars have identified various factors behind investors’ focus on ESG when engaging with their investee companies. These include investors’ desire to manage non-diversifiable (or “systematic”) investment risks such as climate change, and political and regulatory initiatives that prompt … Read more

Debevoise & Plimpton Discusses Executive Order Paving Way for New EU-U.S. Data Transfer Framework

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On October 7, 2022, U.S. President Biden signed Executive Order 14086 on Enhancing Safeguards for United States Signals Intelligence Activities (the “Order”). The administrative Order creates new protections applicable to cross-border data sharing through a phased implementation process and is the latest step toward establishing a new data privacy framework intended to permit the free flow of data from the EU to certain U.S. businesses.

This blog post recaps the history of the EU-U.S. data sharing agreements, examines the key features of the Order, and outlines the process for an assessment of its adequacy by EU authorities.

How Did We

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African Capital Markets: The Case of the Democratic Republic of Congo

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On June 21, 2021, the International Monetary Fund (IMF) weighed in on the economic situation in Africa, and the news was not good.

“African economies are at a pivotal juncture,” the IMF said. “The COVID-19 pandemic has brought economic activity to a standstill. Africa’s hard-won economic gains of the last two decades, critical in improving living standards, could be reversed. High public debt levels and the uncertain outlook for international aid limit the scope for growth through large public investment programs. The private sector will have to play more of a role in economic development if countries are to enjoy … Read more

How the Rise of Corporate Debt in Emerging Economies Affects Corporate Investment

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In recent years the corporate debt landscape in emerging markets has changed substantially. Debt in emerging economies climbed to a record high of $55 trillion in 2018, illustrating the largest and fastest surge in the last five decades. In addition, according to the International Monetary Fund (IMF) 2015 report, the mean ratio of corporate debt to GDP grew by 26 percent. These recent developments are important and have raised broad concerns because emerging economies account for 60 percent of the global GDP.

High levels of leverage could either constrain or accelerate firm growth. In addition, high corporate debt … Read more

Remedies for M&A Breach of Contract – The Cineplex Case

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A remorseful acquirer wants to get out of a merger or acquisition agreement. It concocts a thin justification, which a court wisely rejects, finding unlawful breach. What is the appropriate remedy for harm done to the target?

While attention has focused on the controversy surrounding Elon Musk’s proposed acquisition of Twitter, this question arose in the recent Canadian decision of Cineplex v. Cineworld.[1] The Cineplex court rejected specific performance and instead, in a case of first impression, awarded the target CAD $1.24 billion in expectation damages for loss of anticipated synergies.

Our forthcoming paper takes a close look … Read more

Finance Without Law: The Case of China

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In a new article. I investigate how two financial markets of trillions of dollars each have developed extralegally in the past two decades, creating risks of regulatory enforcement actions and contract defaults. More specifically, I examine (1) how Chinese internet companies from Sina to Alibaba have adopted the structure of a variable interest entity (“VIE”) both to circumvent the Chinese government’s ban on foreign capital in high-tech industries and to get listed on overseas stock markets, and (2) how Chinese entities and foreign investors contract out of China’s stringent regulations on the issuance of international bonds, focusing on one of … Read more

SEC Accounting Chief Warns Chinese Companies About Risks of Changing Auditors

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One of the recent central themes of the Office of the Chief Accountant[1] has been that high-quality audits are foundational to the trust that underlies capital markets.[2] High-quality audits protect investors, instill shareholder confidence in the quality of the financial information, and enable public companies to raise capital efficiently.[3] The investor protection afforded by high-quality audits is as important to U.S. investors in foreign companies that participate in the U.S. capital markets as it is for investors in domestic companies. In fact, it could be argued that the additional information barriers that may exist when investing in … Read more

ISS Discusses Five Non-U.S. Class Actions Investors Should Pay Attention To

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As institutional investors know, a vast majority of shareholder related class actions take place in the United States. This is accurate in terms of both newly filed cases and settlements.

However, non-North American shareholder litigation is significantly important to investors looking to recoup lost assets, while at the same time keeping companies accountable for violations of local securities laws. In fact, the largest non-North American settlement of all-time was resolved earlier in 2022… a €1.4 billion settlement with Steinhoff International.

Here is a look at five current non-North American cases investors should keep their eye on:

The A2 Milk

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Corporate Governance and International Law

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Why should corporate managers comply with international law?  International agreements, customary international law, and non-binding recommendations are sources of norms that, if adopted, could address many of the harms that corporations create for society and the planet.

Corporations are increasingly exposed to a variety of reputational, legal, regulatory, and other risks when they operate in a manner inconsistent with society’s expectations.  Environmental, social, and governance (ESG) issues are priorities at many corporations, but managers struggle with how to implement them. Fortunately, many international laws offer the blueprint for ESG strategies.  For example, the United Nations Guiding Principles recognize the “corporate … Read more

Argentina’s Cliffhanger Negotiations on a New Loan Deal with the IMF   

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In late March, Argentina and the IMF agreed on a new arrangement that would enable Argentina to avoid falling into arrears on the IMF’s 2018 loan. However, the agreement was reached only after protracted and tortuous negotiations that dragged on for at least 18 months and concluded only at the last minute before a de facto March deadline.

In a new two-part article, I discuss the many twists and turns of the process and review the major substantive policy differences between Argentina and the IMF as well as the political considerations involved in the negotiations.

In August 2020, Argentina restructured … Read more

Davis Polk Discusses Key Takeaways for Banks of Basel Climate Report

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Here are the key takeaways from the Basel Committee’s final Principles for the Effective Management and Supervision of Climate-Related Financial Risks (the “Basel Principles”).

  1. The core elements of the Basel Principles align closely with proposed principles from the OCC and FDIC

    • The Basel Principles1 align closely with the climate-related risk management principles proposed by the Office of the Comptroller of the Currency (the “OCC Proposal”)2 and the Federal Deposit Insurance Company (the “FDIC Proposal”).3
    • The Basel Principles are part of the Basel Committee on Banking Supervision’s (the BCBS or the “Basel Committee”) work of assessing how the

… Read more

Sullivan & Cromwell Discusses EU’s Corporate Sustainability Reporting Requirements

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European Union leaders have reached a provisional political agreement on a revised Corporate Sustainability Reporting Directive (“CSRD”) that would introduce more detailed sustainability reporting requirements for all “large” EU companies and companies with securities (including low denomination debt securities or depositary receipts) listed on a regulated EU market. “Large” companies are those that meet at least two of the following: (i) total balance sheet exceeding €20 million, (ii) annual net turnover exceeding €40 million and/or (iii) average number of employees exceeding 250. Under the revised text published on June 30, 2022, non-EU companies would also be required to … Read more

Sovereign Debt Restructuring for Emerging Economies in Turbulent Times

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In a new article, I discuss the impact of the currently turbulent global economic environment on the prospect for sovereign debt defaults and restructurings in emerging economies.  I also review three types of emerging markets sovereigns that may be at risk of such defaults and restructurings: countries adversely affected by the economic fallout from the war in Ukraine (e.g., Egypt), countries weighted down by debt incurred in connection with China’s Belt and Road Initiative (BRI) (e.g., Sri Lanka), and countries that have had ongoing sovereign debt problems (e.g., Argentina and Venezuela).

First, it is important to put recent global economic … Read more