EU urged to avoid tighter rules on sustainable corporate governance

Trade association EuropeanIssuers has joined FERMA in arguing there is no need for the EU Sustainable Corporate Governance Framework.

In its response to the European Commission’s Consultation on sustainable corporate governance it voiced concern, not just that additional rules would harm organisations’ competitiveness, but that the questionnaire itself made it difficult to express dissenting opinions “without being regarded as opponents of good governance”.

Meanwhile, FERMA pointed out that existing processes and frameworks, such as enterprise risk management (ERM), already encourages companies to look at the risks and impact of issues like environmental pollution, human rights violations and climate change.

Creating EU-wide mandatory requirements for due diligence would add administrative costs and could damage competitiveness for European companies, according to FERMA.

These comments are at the heart of the risk management association’s response to the recent public consultation run by the European Commission on sustainable corporate governance.

Luc Vansteenkiste, chairman of EuropeanIssuers said: “We regret the lack of consideration of the social reality of the business environment. Companies already integrate sustainable governance in their strategy in many ways through increased dialogue with stakeholders and discussing CSR risks and criteria in executive compensation at the board level.

“A company’s long-term vision embraces and considers its environment, customers and people otherwise it has no future. This evolution is at the core of the new set of principles of the Corporate Governance codes across the EU and applied by business leaders”.

Florence Bindelle, secretary general of EuropeanIssuers added: “If the EU considers it necessary to take further action on the issue of corporate governance, this subject should be better dealt in the form of a Recommendation towards the Member States in order to avoid a “one size fits all” approach due to the wide diversity of corporations and practices.”

The trade body, which represents more than 70% of European public companies, highlighted that several aspects of directors’ duties were sufficiently covered by existing legal requirements of other EU legislative instruments and corporate governance codes.

FERMA’s Sustainability Committee, which prepared the risk association’s response, stated: “Any initiative in the area of sustainable corporate governance will have a direct impact on the risk exposures (or risk profile) of an organisation—the primary concern of the risk manager—which is why it is vital our voice is heard in this topic.”

It prefers the ‘minimum process and definitions approach’ with requirements that are risk-based and proportionate to the nature, scale and complexity of the organisation. “Such processes also steer thinking away from a short-term perspective and help map out likely impacts on a wide variety of stakeholders,” states the response.  

Directors should take account of stakeholder interests and maximise social and environmental performance in tandem with financial returns. At the same time, FERMA argues, there should be a clear perimeter to the type of stakeholders when it comes to defining directors’ duty of care.

When it comes to potentially damaging effects on corporate sustainability through the supply chain, FERMA argues that the best approach is to further encourage companies to maintain a holistic risk management approach.