I recently attended an excellent Chartered Governance Institute conference which examined how Covid-related lockdowns had forced most boards to meet using virtual means and whether such virtual meetings were as effective as when board members are sitting together around the board room table.
The answer to that particular question is one for a separate article but one of the panel sessions considered how boards deal with ESG topics.
The panellists made a number of quite thought-provoking points one of which got me thinking about governance in the context of ESG.
In the last thirty years a number of reviews were carried out in the UK into standards of corporate governance. These were largely triggered by a series of high-profile corporate failures. Sadly events at Carillion, Wirecard and others show that perhaps unsurprisingly, these continue to occur today.
In particular the panel discussions made me wonder whether governance (at least in the context of ESG) has been somewhat overshadowed by the arguably more fashionable environmental and social factors.
With good reason there has been plenty of focus both from investment managers, shareholders and various other pressure/ interest groups on the need to ensure companies reduce their carbon footprint and take other tangible measures to combat the effects of climate change. Likewise, companies are regularly questioned about the treatment of their own workforce and that of their supply chain in order to ensure that the principles of diversity, fair pay and human rights are respected.
Responsibility for the governance of companies ultimately rests with the board of directors which sets the tone for the organisation. It involves interaction between the board, management, shareholders and other stakeholders and is key in shaping both the company’s performance and its impact on the surroundings in which it operates. As such, a responsible board should have already set out its stall on ESG related topics and ideally have a clearly defined roadmap setting out how it will achieve its objectives.
Unfortunately in my experience many employees are unaware of whether the corporations for which they work have an ESG policy. If such policies do exist, the way in which they are cascaded down the organisation or otherwise highlighted needs leaves room for improvement.
Whilst many organisations have already formulated ESG policies, it is not yet too late for boards to take the initiative if they have not already done so. In doing so we would encourage them to carefully consider their corporate governance arrangements, ensuring that they are fit for purpose and do not fall into the trap of adopting a “box ticking” approach to self-assessments.
If you would like to discuss this or any other corporate governance- related topic with us or require assistance with a corporate governance review, please do not hesitate to contact us.
September 2021
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