The space industry is undergoing a rapid transition. This is mostly because the traditional objectives, especially observatory space missions, have given way to more commercialised exploratory goals. Recently, in addition to the significant increase in the number of private satellites orbiting earth (around 11,000), new exploratory attempts in space ￼have included mineral mining, space tourism and high-power rocket transportation. Planning a vacation in space is no longer a dream as there are currently several opportunities for individuals with means to make the trip.
Multiple factors underlie this paradigm shift from old space to new space. Greater privatisation within the global space industry created an enabling environment for private actors to spur transformative innovations. Consequently, in addition to sovereigns, private companies owned and/or controlled by privileged individuals (e.g., Elon Musk’s SpaceX and Virgin Galactic) have now become key stakeholders in the trajectory of present space industries.
To a large extent, the participation of these private non-government entities have driven considerable benefits in the industry, most notably by driving up competition and growth. However, the increased activities of non-state actors have also catapulted new concerns relating to their operations, business practices and implications for global environmental and financial stability to the forefront of debates among global regulators and international stakeholders. Specifically, most recent concerns with potentially systemic implications for international governance have included space traffic management, unethical space mining, space debris accumulation and damage to celestial bodies, to name a few.
While the Outer Space Treaty and other foundational international legal instruments have provided broadly for authorised actors, acceptable activities and liabilities for damages, the ￼of these legislations are primarily restricted to sovereign states who are signatories￼ As a result, compliance with the provisions of the provisions in internal activities is mostly by ￼entities, relying significantly on the interpretations and compliance mechanisms of individual member states. As already known, regulatory compliance frameworks in most of these jurisdictions are structured to reflect their peculiar political, social, and economic objectives and circumstances. Unsurprisingly, the resulting diverse approaches breed fragmentations in global regulatory compliance regimes, a factor which grossly affects the efficiency of existing legal instruments in combating the existing and emerging systemic concerns in the space industry. ￼
This situation is worsened by the fact that notable ￼ of the space industry as a result of new ownership and management patterns have catapulted private actors into significant players alongside state entities. ￼￼collaborate on several space missions, for example, SpaceX’s Starship rocket was recently selected to carry NASA astronauts to the moon under the Artemis programme. Thus, creating increased likelihood of serious conflict of interest and moral hazards when ensuring compliance with treaties and determining liabilities for operational damages.
On the main, my research aim in this paper is to explore the desirability of “comply or explain” compliance approach as a complementary tool for ensuring effective regulation and coordinated supervision of activities and actors within the space industry.
Private Actors and the “Comply or Explain” Governance Approach
Privatisations—the increased participation of private actors—in major sectors of global jurisdictions is not limited to the space industry. However, within the sector, the leverage of technology-based solutions by new private actors have drastically reduced many costs, especially associated with satellite launch.
Unlike their state-owned counterparts with embedded public policy mandates, most private actors are profit-oriented, and the management board acts primarily in the interest of the shareholders and other investors. So, while they may be persuaded to ensure an alignment between their primary corporate objectives and public policies specific to the industry, their ultimate goal will always be geared towards profit maximisation. This factor poses critical challenges, especially from coordination and supervision, to the efforts by international regulators and key stakeholders towards managing the systemic concerns arising from increased space activities and key actors. To ameliorate this, it is important to draw lessons from regulatory interventions and innovative compliance approaches applied to similar situations in other sectors, particularly finance.
The “comply or explain” approach formally originated in the UK Cadbury report on corporate governance and has become a global model across jurisdictions. Importantly, it offers a desirable template for global adoption within the space industry. Broadly speaking, the non-prescriptive compliance approach requires participants to by default comply with the provisions of prescribed regulations (e.g., the UK Corporate Governance Code). However, in situations where compliance with these provisions will occasion immeasurable hardships on participants’ viability, they may choose not to comply, as long as a justifiable explanation for such non-compliance is provided.
In my research, I argue that this unique approach can be particularly significant to the future of regulatory compliance and international governance within the space industry. This claim is premised upon several factors, some of which are briefly considered below.
Firstly, “comply or explain” offers considerable flexibility as a regulatory compliance mechanism as opposed to the strict prescriptive regulations that often lead to “box ticking” by actors to avoid penalties. In this context, the flexibility can foster the increased leverage of beneficial innovations within the space industry by providing opportunities to avoid strict compliance with stifling regulations where it may affect participants. To curb the likelihood of moral hazards, all explanations for non-compliance are to be made public for scrutiny by regulators, investors, and stakeholders through communication in corporate reports.
Secondly, and following from the first point, the approach also provides a platform for increased stakeholder engagement in legislative processes and enforcement mechanisms. As earlier mentioned, the new ownership patterns within the space industry necessarily requires the facilitation of increased participation by new key stakeholders (e.g., non-state actors) to ensure effective and innovative decisions. For emphasis, the flexibility of the approach ensures that regulations can be amended easily to adapt to the fast-paced innovations, which is lacking in current international treaty negotiations and agreements.
In addition, where there appears to be a default in compliance, regulators and, sometimes, market forces (e.g., investors and international activists’ groups) may compel compliance through various enforcement tools, including sanctions, corporate goodwill, and share-price fluctuations.
Thirdly, the approach is relatively flexible to adopt and implement. It therefore provides a more efficient alternative to accommodate the diverse regulatory and compliance arrangements in the national and international space industry. More to this point, it can support the continuity and efficiency of the existing regulatory frameworks by bolstering national compliance architectures to reflect the idiosyncrasies of individual jurisdiction. So, whether the national governments are innovation-centric or more cautious about how new activities may impact the environment, the approach can easily adapt to both scenarios. This is because it creates opportunities for regulators to learn about the benefits and inherent challenges This knowledge will no doubt foster the creation of agile strategies to future-proof the derived benefits (e.g., lower costs) from the private actors’ participation while mitigating the risks.
However, the paper makes no bold claims that this proposal is a silver bullet capable of curing all the existing and emerging concerns in the space industry. In fact, within the corporate governance ecosystem where the mechanism has been impactful, there are several outlier jurisdictions who still prefer a different approach to it. These jurisdictions, including Nigeria, India, and the US—all key stakeholders in the space industry, have instead opted for more prescriptive “apply and explain” approach. This alternative approach is more prescriptive in nature, requiring companies to provide detailed explanations about how they have complied with the required regulatory provisions. This obvious heterogeneity may suggest that even with this approach, considerable fragmentations may persist in the global regulatory compliance within the space industry. For the emerging systemic concerns like space traffic management and debris accumulation, this reality may continue to complicate the existing regulatory efforts.
For example, it can pose gross limitations to coordinated supervision and regulatory equivalence between jurisdictions where the private actors operate. In this instance, regulatory arbitrage may worsen with private actors choosing jurisdictions with weaker compliance frameworks to conduct their activities. But as recently observed, the adverse implications of non-compliance in global concerns, such as climate action, are not limited to national jurisdictions.
Notwithstanding, there may be a silver lining in all this situation. This is because most of the new private actors are corporate groups and global conglomerates operating across multiple jurisdictions. Therefore, even in instances where they are not subject to the comply or explain approach in their home jurisdiction, it is likely that it may apply in one of the other several host jurisdictions. The success of potential regulatory equivalence in this framework may be gleaned from the application of comply or explain to all listed companies on the London Stock Exchange, regardless of the jurisdiction of their incorporation.
In this context, the compliance approach may in time progressively penetrate the core corporate culture of most, if not all, non-state actors and become a global model for inclusive developments in the space industry, similar to what is observed in the corporate governance space.
Sijuade Animashaun is a PhD candidate at the Faculty of Law of the University of Hong Kong.
This post is adapted from their paper, “Impact of Ownership Patterns on Outer Space Regulations,” available on SSRN.