THE COMPLEXITIES OF COVID-19, SUSTAINABILITY AND INCENTIVES
One of the major changes we have seen in recent years is the rise of the board’s focus on sustainability. Increasingly, environmental, social and corporate governance (ESG) and sustainability are at the heart of stakeholder engagement with companies. No longer is it enough for a company to point to profitability as evidence of its good to society; a whole host of other, sometimes conflicting issues must also be considered. And boards are very much reflecting on this change.
In July 2016, the Financial Reporting Council (FRC) published its report on ‘Corporate Culture and the Role of Boards’. The FRC has come in for some criticism in recent years, but this report was an excellent piece of work which focused corporate minds on some of these issues. We have also seen thought leadership from a variety of industry bodies. Boards have built on this wider corpus of guidance and thought leadership to oversee management activities in the ESG space more effectively and our experience is that it is very much a question of their setting the tone from the top, although the executive team very often needs little persuasion.
This is the result of both internal and external factors. To some degree it is a function of changes in boardroom composition, with many boards having younger members, with different social interests and experience in different corporate cultures. But it is also a function of changes outside the boardroom. The impact of the press and social media commentary on ESG issues, coupled with the activities of activist investors, has been unmissable and even the least aware directors cannot have been unaware of the breath of the winds of change.
Jan-Mar 2021 Issue
ICSA: The Chartered Governance Institute