Sustainable corporate governance – what’s in it for risk management?

The European Union last year formalized its ambition to become ‘climate neutral’ by 2050 with the European Climate Law.

In the words of the European Commission President Ursula von der Leyen, this law is at the heart of the EU Green Deal and sets the direction of travel for all EU policy.

It is in this context that both the Commission—the legislative arm of the EU—and the European Parliament—i.e. elected representatives of EU citizens and businesses—have over the past 6-9 months been increasingly vocal on how the current status quo in business practices must change if we are to meet the goal of climate neutrality.

Parliament and the Commission view current business practices as overly oriented towards maximizing return to shareholders. The focus is too short-term. The antidote to this, in the view of both Parliament and the Commission is to embed sustainability at the heart of the economic system.

One of the ideas to encourage this longer-term vision and sustainable business practices is to make ‘corporate governance’ more sustainable.

Over the past 4 months the European Commission has been running a public consultation on possible initiatives in the area of sustainable corporate governance. The Commission is looking into a variety of options, including making Directors’ duty of diligence mandatory, i.e. making them accountable for their organisation’s sustainability strategy.

Also on the table is the possibility that the ‘perimeter’ of organisations would drastically increase, pinning more responsibility on chief executives and boards over the conduct of third party providers and their own supply chain.

What is clear is that the EU wants companies to go further on sustainability.

At the very least there will be more requirements on companies to articulate their sustainability strategies as well as bringing in a wider variety of stakeholders into this process, helping shift focus away from the short-term value-creation for shareholders.

On Monday 8 February FERMA submitted its response to the European Commission’s public consultation on this topic. FERMA’s Sustainability committee drove this process in consultation among its members over the past months.

In its response to the consultation, FERMA articulates its opposition to mandatory due diligence requirements.

At the same time, we position risk managers as an overall positive contributor to their organisation’s sustainability strategies.

Risk managers are ideally well positioned with their transversal view of organisations and ERM process to make a telling contribution to identifying risks and opportunities related to sustainability.

FERMA will continue its advocacy efforts on this important and growing topic. We are currently developing a set of guidelines for risk managers on sustainability with the Sustainability Committee. These will be launched at a webinar in March/April.

 

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