Leading NGOs working on corporate sustainability and sustainable finance have published a briefing with key recommendations to help clarify directors’ responsibilities to oversee sustainability that fully fit with existing company law and corporate governance frameworks across Europe.
The briefing follows a public letter sent by NGOs to DG Justice Commissioner Didier Reynders and Executive Vice-President Frans Timmermans in support of the EU Commission plans on Sustainable Corporate Governance (SCG) and responding to recent criticism.
The SCG initiative, which was included in the Sustainable Finance Action Plan and the EU Green Deal, is set to provide solutions to two issues:
The NGOs are presenting detailed recommendations for the latter part of the initiative. The involvement of boards is paramount to ensure that companies are able to consider and take the necessary strategic decisions with regards to the management of sustainability risks and impacts, and integrate them in overall corporate strategies and business operations.
More specifically, our recommendations tackle the need for coherence and alignment within the corporate and financial market regulatory framework in Europe. In this regard, connecting the dots between companies’ sustainability reporting and upcoming due diligence obligations requires effective governance and oversight from the company’s senior management and the board. Our proposals are therefore divided into two categories to ensure an effective reform:
Filip Gregor, Head of Responsible Companies Section at Frank Bold, states: Board members already have wide discretion to take account of sustainability matters. However, as shown by the Alliance for Corporate Transparency research on 1000 large EU corporations’ non-financial (sustainability) reports, less than 15% of companies provide insights on the integration of sustainability in core business strategy, Board discussions, and performance incentives. The solution to this gap in practice is simple. To bring sustainability on the board's agenda, withing the existing directors' duties, the European Commission's sustainable corporate governance reform should specify board's procedural obligation to provide oversight of corporate sustainability risk management and due diligence obligations."
If you have any questions, please write to susanna.arus@frankbold.org
The Russian war in Ukraine has, in addition to the COVID-19 global pandemic, once again highlighted the need for corporate human rights and environmental due diligence (HREDD) regulation, such as the proposed EU Corporate Sustainability Due Diligence Directive (CSDDD).
The next months are key to determining what kind of sustainability data companies will disclose. For the transformation to an economy within planetary boundaries, we call on the ISSB to develop standards that go beyond climate, require reporting on key impact data and ensure climate-related disclosures are sufficiently granular to be meaningful.
The European Commission, Parliament and Council reached an agreement for the new EU Corporate Sustainability Reporting Directive (CSRD) that clarifies disclosure obligations for large companies and listed SMEs, and mandates the development and adoption of mandatory EU corporate sustainability reporting standards.
