Barbarians at the Gate or Angels at the Crossroads? Examining the Impact of the UK Green Taxonomy on Private Equity Firms

Authors

Melek Redzheb
Fatjon Kaja

First Page

341

Abstract

This Article explores whether the UK Green Taxonomy will foster sustainable corporate governance in private equity-backed portfolio companies. We explore how the Taxonomy will address the greenwashing problem that plagues financial markets, including the private equity industry. Our analysis suggests that general partners will have a twofold response to the new reforms. In the short term, they will seek to address the social concerns of limited partners by negatively screening unsustainable companies and cherry-picking more sustainable ones (the so-called “exit” strategy). In the long term, however, they will adopt a dynamic strategy to transform unsustainable targets into sustainable enterprises on exit (the so-called “voice” strategy). We explain these findings through the lens of law and economics and show that competitive pressure and better integration of sustainability in market pricing shape this dynamic. Lastly, we advance a policy proposal that can further incentivize engagement on environmental sustainability issues.

Recommended Citation

Melek Redzheb & Fatjon Kaja, Barbarians at the Gate or Angels at the Crossroads? Examining the Impact of the UK Green Taxonomy on Private Equity Firms, 19 Brook. J. Corp. Fin. & Com. L. 341 ().
Available at: https://brooklynworks.brooklaw.edu/bjcfcl/vol19/iss2/2