Green Dividends: A Case Study in Green Dividends and the Conditions for Private Ordering Solutions

Green Dividends: A Case Study in Green Dividends and the Conditions for Private Ordering Solutions Anne M. Tucker* ABSTRACT This Essay introduces a novel private ordering solution to facilitate corporate investments in pro-social and environmental initiatives: Green dividends. Green dividends are an optional increase in shareholder dividends that are returned to the company to be reinvested in environmental initiatives or kept by a shareholder. Green dividends pose an alternative to the current gridlocked debate that corporations can’t, won’t, shouldn’t, and shouldn’t even try to act in pro-social or environmental ways. Turning the common refrains on their head converts each narrative into an element for a successful private ordering solution: authority, accountability, shareholder buy-in, and government-backed enforcement. With Green dividends, shareholder voting establishes board authority to act and shareholder consent. Shareholder voting rules import securities laws’ mandate of complete and truthful information backed up by private rights of action. This Essay maps Green dividends—first used in Germany—to U.S. corporate law and identifies Green dividends’ potential benefits and pitfalls. The Essay concludes with an extension of Green dividends but acknowledges that Green dividends will not facilitate all pro-social and environmental corporate investments. Green dividends are a tool in a growing toolkit that corporations can continue to expand with private ordering. * Anne M. Tucker is a Professor of Law, Georgia State University College of Law. I thank readers from the 2024 Berle Symposium including organizers Chuck O’Kelley and Sarah Haan, participants Cindy Williams, Faith Stevelman, Renee Jones, Madison Condon, Colleen Honigsberg, Jerry Davis, George Georgiev, Gee Young Min, Jeff Schwartz, Aaron Dhir, Helen Norton, Elizabeth Pollman, and Margaret Blair. I thank Robert Esposito, Managing Director and Senior Counsel, Sustainability, of Apollo Capital, and my graduate research assistants, Sahil Dharamup & Kellyann Malone. All errors or omissions are my own. 519 520 Seattle University Law Review [Vol. 48:519 CONTENTS INTRODUCTION ......................................................................................521 I. NARRATIVES & NECESSARY CONDITIONS .........................................523 A. The Legal Limits: Corporations Can’t ..........................................525 B. Greenwashing: Corporations Won’t .............................................528 C. Capture: Corporations Shouldn’t ..................................................531 D. Too Big! Corporations Shouldn’t Even Try ..................................533 E. A Road Map for Private Ordering Solutions .................................535 1. Board Authority.........................................................................536 2. Shareholder Voting & Buy-in. ..................................................537 3. Aligning Incentives & Accountability ......................................538 4. Enforcement ..............................................................................539 II. GREEN DIVIDENDS: THE ALSTRIA CASE STUDY ...............................540 A. alstria’s Green Dividend ...............................................................541 B. Green Dividends & Private Ordering Conditions .........................544 1. Board Authority to Act ..............................................................544 2. Shareholder Buy-in....................................................................546 3. Accountability & Alignment: Transparency & Reporting ........546 4. Government-Backed Enforcement Mechanism ........................551 III. IMPORTING GREEN DIVIDENDS TO THE U.S. ...................................552 A. U.S. Board Authority .....................................................................552 B. Shareholder Approval, Securities Law, & Corporate Accountability ...................................................................555 C. Shareholder Voting & Buy-In ........................................................557 1. Costly Votes & Shareholder Support ........................................558 2. Institutional Investors ................................................................560 a. Pass-Through Voting .............................................................561 b. ESG & Impact Investment Funds ...........................................563 D. Additional Implementation Considerations...................................564 1. Takeovers & Enhanced Market Scrutiny ..................................565 2. Enhanced Public Scrutiny & Political Backlash .......................567 3. Social Versus Environmental Initiatives ...................................567 CONCLUSION..........................................................................................568 2025] Green Dividends 521 INTRODUCTION “Climate change is one of the greatest challenges facing the planet today, and we believe businesses are an essential part of the solution.”1 —Doug McMillan, Chairman, Business Roundtable President, CEO Walmart Corporations are often dragged into conversations about the most pressing social issues, politics, and climate change with calls for corporations to leverage their considerable economic resources, political influence, and a direct line to consumers to achieve a more equitable and environmentally stable future.2 Corporate investments to decarbonize, transition to alternative energy, and train diversified workforces could undoubtedly do more than individual action alone.3 Some corporations are committed to bending the historical divide of profit and purpose through new entity structures like benefit corporations,4 ownership held in a purpose trust,5 and innovating new solutions like green bonds to finance decarbonizing projects.6 Companies can also implement a blend of social and environmental programs that earn them “green” labels or ESG-positive ratings.7 1. Addressing Climate Change, BUS. ROUNDTABLE (Sept. 2020), https://www.businessroundtable.org/climate [https://perma.cc/KB9M-DC3M]. 2. For an excellent summary of the development of the climate justice movement, corporate law reforms, and emergence of a pragmatic middle urging corporations to do more with the tools at hand, see Brett McDonnell, Hari M. Osofsky, Jacqueline Peel & Anita Foerster, Green Boardrooms?, 53 CONN. L. REV. 335, 348–51 (2021). 3. See BUS. ROUNDTABLE, supra note 1 (calling for collective and coordinated action). 4. For a discussion of benefit corporations as an alternative to for-profit only corporations, see Ofer Eldar, Designing Business Forms to Pursue Social Goals, 106 VA. L. REV. 937, 989–1000 (2020). 5. Ownership, PATAGONIA, https://www.patagonia.com/ownership/ [https://perma.cc/WKN7AXM7] (featuring a letter dated September 14, 2022, from Yvon Chouinard stating that “Earth is now our only shareholder”). 6. See generally Quinn Curtis, W. Mark C. 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