The Dubious Role of Institutional Investors in Driving the GreenTransition: Legal and Economic ConstraintsTransition: Legal and Economic Constraints

This Article critically examines the role attributed to institutional investors in promoting the transition toward a more sustainable economic model, highlighting its legal and economic constraints. Through a comparative analysis of the European Union and the United States, the study shows that, notwithstanding the growing regulatory emphasis on shareholder engagement and ESG-oriented stewardship, institutional investors face significant limitations stemming from fiduciary duties owed to end investors, structural incentive misalignments, and collective action problems inherent in highly diversified portfolios. The Article argues that many ESG engagement initiatives are driven less by their capacity to improve the environmental and social performance of portfolio companies than by reputational and marketing considerations, and therefore tend to be standardized, non-confrontational, and rarely targeted at the worst ESG performers. The analysis further explores the impact of sustainability disclosure regimes—most notably the EU Sustainable Finance Disclosure Regulation and the SEC’s proposed ESG disclosure rules—demonstrating how such frameworks may produce unintended and counterproductive effects by encouraging exclusionary investment strategies rather than effective engagement. The Article concludes that the contribution of institutional investors to the green transition remains intrinsically ambiguous and advocates for a reconfiguration of regulatory approaches, with greater emphasis on transition-oriented investment strategies capable of fostering more targeted and meaningful ESG engagement.