This chapter explores the legal framework for ESG investor engagement and, in so doing, favours a market-led approach over prescriptive regulatory intervention. I argue that investor initiatives and engagement are and should be the primary tool to promote sustainability orientation in the market. Legislative measures are deemed most effective when empowering investor engagement, enhancing transparency in sustainability criteria, and addressing greenwashing concerns. The need to build coalitions and to convince fellow investors of an initiative can then act as an in-built “filter”, which would help mitigate the pursuit of merely idiosyncratic motives and would give support to only those campaigns that are supported by a majority of investors. In particular, institutionalised investor platforms have emerged over recent years to coordinate investor campaigns and to share costs. Accordingly, I conclude with the policy implication that lawmakers should take a supportive and facilitative approach that supports investor engagement and private ordering. By doing so, static and interventionist legal policies would become less justified.

Under which conditions will a public authority intervene in private governance such as certification and eco-labeling schemes for sustainably produced goods? This chapter introduces this research question by presenting the empirical puzzle the book addresses: Why has the European Union (EU) intervened in private governance that deals with organic agriculture and biofuels, but has not intervened in private governance dealing with fair trade and fisheries? The chapter distinguishes between a public authority intervening with standards regulation that involves creating a public definition of sustainable production, and with procedural regulation that addresses the way private governance schemes are organized. The argument the book develops is that whether a public authority intervenes with standards and/or procedural regulation depends on the interplay of two variables: the domestic benefits of product differentiation by a public authority and the fragmentation of the private governance market. The chapter situates the book in the current state of the literature on the interactions between public and private governance and explains the research design and research contributions.