Leading academics publish crucial policy recommendations to make corporate governance more sustainable

With less than a decade left to address the threat of climate change, the EU Commission has launched its Green Deal. And today, the EU Finnish Presidency conference on company law and climate change addresses the emerging consensus that businesses need to be held accountable for their contribution.

The recognition that sustainability in the EU and beyond needs to be embedded in corporate governance has led over 60 leading academics to endorse a statement that addresses the pressure and incentives for companies to prioritise short-term profits at the expense of environmental, social or even companies’ own long-term economic sustainability.

In order to clarify the obligations of company boards and directors and make corporate governance* practice significantly more sustainable and focused on the long term, the signatories recommend that:

• Directors are obliged to develop, disclose and implement a forward-looking corporate sustainability strategy that identifies and addresses material environmental and social issues and significant impacts connected to the company’s business model, operations and supply chain. Such strategy must:
• include verifiable targets and clearly ensure the respect for the planetary boundaries and human rights
• specify a limited set of sector-specific issues and connect public objectives
• link a percentage of the KPIs and remuneration of executive management to the achievement of measurable targets 
• Company boards must discuss and sign off on an annual progress report and a non-executive committee should monitor and review the implementation of the strategy 
• A national regulatory body should be empowered to bring proceedings against the executive directors where non-implementation has caused serious harm to third parties or unlawful harm to the environment. 

The statement is signed by many highly respected voices in the fields of company law, corporate governance and management, including Robert G. Eccles (Visiting Professor at the University of Oxford and previously Professor at Harvard Business School), Simon Deakin (Professor at the University of Cambridge), Katharina Pistor (Professor at the Columbia University) and Rick Wartzman (Executive Director of the Drucker Institute), Marie-Laure Djelic (Sciences Po), Blanche Segrestin (Mines ParisTech) and Beate Sjåfjell (University of Oslo).

Link to the full statement: http://bit.ly/2E4EjJJ

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*The EU Commission’s Action Plan on Financing Sustainable Growth published in 2018 outlined preparatory work on sustainable corporate governance in Action 10. See http://bit.ly/3374B9h