Sustainable Corporate Governance – our policy expert Jenna Luchman cuts through the noise

One of the most debated areas of the EU Green Deal is Sustainable Corporate Governance (SCG) – despite a draft proposal not yet having been published by the European Commission. The intention is to make ESG part and parcel of the European business model, equipping the continent with the best possible chance of contributing to both the UNSDGs and the ParisAgreement. Sustainable Corporate Governance is part of the drive to make companies focus more on their long-term sustainability impact (and reporting as the SCG is complementary to the Corporate Sustainability Reporting Directive) instead of focusing solely on short-term financial performance.

While initially conceived as part of the renewed Strategy on Financing Sustainable Growth (published 6 July), the SCG initiative was pushed back to 27 October, and could now be postponed further. From Internal Market Commissioner Thierry Breton joining Justice Commissioner Didier Reynders to help move the case forward, to the myriad of letters sent to the Commission signed by NGOs, the private sector, Member States and the European Parliament’s heads of political parties, saying there is heavy lobbying surrounding the piece is an understatement.

The initial Inception Impact Assessment and Public Consultation provided insight into what the Commission is pursuing including:

  • Clarifying and expanding directors’ duties of care
  • Aligning their remuneration with integrating sustainability risks and opportunities into the long-term strategy and subsequent non-financial performance
  • Ensuring sustainability expertise at board level
  • Introducing due diligence, accounting for human rights, health, and environmental impacts, into the supply chains.

The reaction from companies has been everything from hoping to stall the initiative, questioning the Commission’s basis and shedding doubt on one of the studies; giving full support to the entire initiative; and advocating for a separation of the initiative, addressing due diligence in the supply chain but dropping regulating corporate governance and directors’ duties

Businesses have come a long way to embed sustainability into their value chains and operations. While much of this is being driven by market-based competition, we believe a legislative initiative drafted with the right level of ambition and tools is the right way forward to ensure a level-playing field where profit is on a par with people and planet.

An advocacy strategy that is true to companies’ sustainability claims, and will cut through the noise, should consider the following:

  1. Aligning with internal corporate ESG commitments and corresponding goals
  2. Focus less on what the Commission shouldn’t do, and more on how business can be a partner in the sustainable recovery
  3. Assessing the right timeline at EU level – no doubt this will continue to evolve, with many moving pieces to keep on top of

There is always much to be said about how grand policy objectives meet the real world. Nevertheless, progressing together on an SCG initiative will prove to be one of the real tests for multi-stakeholder engagement for a more sustainable future. With the upcoming COP26, and the current Decade of Action to deliver our #GlobalGoals, companies have a real chance to make a major impact on the path towards a sustainable recovery.