ACCA welcomes the opportunity to contribute to the EC consultation on a Proposal for an Initiative on Sustainable Corporate Governance, and foremost agrees that sustainability needs to be further embedded into corporate governance frameworks. Covid-19 has forced companies to re-think their purpose and strategy for the long-term and now is a better time than ever to introduce more effective measures to make sure this happens, otherwise businesses will not be able to survive, thrive and make better impacts on people, the environment and society at large. As we have noted before, sustainable corporate governance is not only about compliance it is also about creating value and building a viable recovery.
As such, we support the Commission’s initiative for shifting from short to long-termism and agree it would help integrate stakeholder interests, strengthen a company’s competitiveness as well as lead them to improve their environmental and social impacts. It also would allow for better measuring of business performance with environmental and social metrics.
However, ACCA sees a crucial need for better guidance, particularly for small-to-medium enterprises to a) identify risks and impacts; b) implement governance processes; c) engage with stakeholders more effectively; d) conduct materiality assessments; and e) align the long-term interests of stakeholders and shareholders with overall business strategy. We believe that the EU could support stakeholder engagement more by building a better dialogue on national and sector levels. We echo other responses to enhance collective action on the ground by getting companies, business councils, policy makers and stakeholders to work together on integrating sustainability objectives into business models and supply and value chains, as well as to set more coherent best practice standards for this.
Furthermore, ACCA would urge companies to report both their objectives and progress on shifting from short to long-term thinking and explain where they are in this journey. This ultimately would help companies better align their decision making with stakeholders’ expectations in mind, which is already the direction we see investors and prudential regulators around the world heading.
We also welcome more transparent disclosures on Boards in terms of their compositions, objectives and communications, as the pandemic proved that many lack a sufficient understanding of their company’s risks. Boards need to be made up of more diverse backgrounds and expertise, from scientific and physiological to technological and communicative. Diverse thinking will help company directors make better decisions and avoid biases that create blind spots, better preparing them for the challenges facing their organizations today and tomorrow. Boards also need to look more closely at long-term value creation, and reconsider how they allocate the profits of their companies, cater to the interests of their different stakeholders and balance the short and long-term requirements. They also must look out for ways to innovate and transform, not least by mapping out supply chains and identifying gaps and red flags. Boards must drive a responsible culture and approach to business conduct and this can only be achieved by carrying out proper due diligence. Lastly, Boards should reassess their communications and flows of information to ensure they are managing every potential scenario and risk – financial or non-financial – effectively and in a timely manner. Boards need integrated information that connects the financial and non-financial dots to help them build resiliency.
We feel it is important to keep initiatives closely in line with international standards when developing measures for sustainable corporate governance frameworks and due diligence requirements. So, for example, with the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, and the ILO Tripartite Declaration of Principles on Business concerning Multinational Enterprises (MNE Declaration).
To see the detailed response, please download the consultation doccument found in this page.