Accountancy Europe: EC roadmap on sustainable corporate governance
09 October 2020
Accountancy Europe welcomes the opportunity to provide feedback on the European Commission’s Inception impact assessment on sustainable corporate governance.
Environmental
risks also entail significant financial risks for businesses, markets,
investors, and the economy. To deliver on the goals of the Paris
Agreement on climate change as well as the EU Green Deal, it is
imperative to instil businesses’ accountability for their impacts on the
environment and society.
There is strong empirical evidence that voluntary initiatives are, at
least, insufficiently effective. Companies need to address their
sustainability impacts on environmental and human rights issues. These
impacts need to be properly measured, factored in and accounted for by
business. Corporate governance mechanisms within the company should
properly underpin corporate accountability through appropriate processes
and governance arrangements, which should be subject to independent
verification.
Sustainable finance has a key role to play in the transition. Clear,
consistent and evenly enforced legislation across countries is key to
ensure that sustainability is truly and fully embedded into corporate
decision making. We propose the following key points to be addressed in
priority in the sustainable corporate governance agenda:
- Integrate sustainable value creation into the duties of the board: Members
of the board have a particular responsibility when they define a
business strategy and oversee its execution. Sustainable value creation
for the company without material harm to environment and society should
be at the heart of the undertaking’s purpose and the duties of the board
(cf. the French law “loi pacte”). This entails adapting relevant
company law legislation i.e. the EU Company Law Directive 2017 or the
Shareholders’ Rights Directive.
- Set effective mechanisms to verify due diligence disclosures are trustworthy:
We support the Commission’s decision to proceed with a legislative
proposal on due diligence duty. It is key to rigorously monitor the
compliance and ensure the enforcement of the rules, including through
penalties and sanctions. The Commission should couple this with a level
playing field in the single market to foster change and legal certainty.
- Expand the scope to all companies that significantly impact the environment and society:
Corporate governance should not be only an issue only for larger
corporations. Ultimately, it is not about the size of a business, but
about its risks and sustainability impacts. Enterprises operating in
high risk sectors can have substantial external impacts regardless of
their size. It will be important to ensure that regulatory measures are
proportionate to the companies’ size but also to their sustainability
impacts and risks.
- Align NFI reporting with sustainable corporate governance:
Transparency and disclosures on how environmental and social risks and
impacts are tackled and integrated in the governance and risk management
processes in the short, medium and long-term will be critical to
consistently address short-termism in financial markets. The board will
play a key role in this by remaining accountable for their company’s
disclosure of material impacts on society and environment as detailed in
the NFR Directive.
The accountancy profession has an important role in advancing
effective corporate governance. Auditors can add value by providing
assurance services in respect of corporate governance, internal
controls, and sustainability reporting.
We are committed to engage in the discussion and further contribute our expertise and thought leadership.
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