Corporate Governance Reform must account for long-term sustainability, says IEMA

Attempts to enhance the competitiveness of UK businesses through the Corporate Governance Reform should account for long-term financial performances covering environmental and social factors, the Institute of Environmental Management and Assessment (IEMA) has claimed.

The UK Government launched an open consultation into Corporate Governance back in November 2016. The reform calls on businesses and organisations to provide expert advice on issues regarding executive pay, employee and customer voice and corporate governance in large private businesses.

In the wake of Brexit, the Government is hoping the reform will strengthen the UK’s “attractiveness” towards businesses and investors, and is seeking to boost competitiveness. For IEMA, which represents more than 15,000 sustainability professionals, the reform will only be successful if corporate sustainability is placed at the heart of any future strategy.

IEMA’s chief policy advisor Martin Baxter said: “Companies have a critical role to play in enhancing economic and social value in a way that is low carbon, resource efficient, enhances natural capital and respects human rights. Current corporate governance practice places undue emphasis on short-term financial performance, to the detriment of long-term decision making in companies. 

“Greater accountability to society is needed through enhanced corporate transparency and directors’ accountability. This approach needs to be more clearly embedded throughout Government’s reform of corporate governance. It must also be reflected in the way that Boards engage with employees and stakeholders, in executive pay awards, and in the way that companies report.”

Corporate storm

IEMA’s response to the consultation, which closes today (17 February), lists five key recommendations to ensure that sustainability grows hand-in-hand with the competitiveness of UK businesses.

In the response, IEMA calls for corporate governance to accelerate public trust in companies, mainly through enhanced transparency and accountability. This approach should encourage boards to interact with employees and stakeholders to create a more holistic approach. IEMA states that transparency measures should apply equally to private and public organisations.

Companies should also be encouraged to look beyond short-term financial performances, which IEMA believes is to the detriment of long-term decision making and security. Corporate sustainability should also be a central structure to this reform as a means to foster low-carbon growth and economic prosperity.

Much of the recommendations touch on the warnings outlined in IEMA’s “Beyond The Perfect Storm: The Corporate Sustainability Challenge” report, released last year. The report states that a “business as usual” approach from the private sector is driving the planet past its environmental and social boundaries.

The Corporate Governance Reform is just one major policy reforms that could enhance the business approach to sustainability. IEMA predicts that the Industrial Strategy, the Emissions Reduction Plan, the 25-year environmental plans and the Great Repeal Bill will all shape corporate sustainability in 2017.

Matt Mace

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