Corporate Governance Evolves Amid Increasing Sustainability Awareness
October 24, 2022
- Major regulatory initiatives in Europe and in the United States could encourage the consideration of sustainability issues in boards of directors’ decision making.
- A focus on stakeholders’ interests is currently permitted by certain legislation. While this possibility exists in France and in the United States, only a few medium- and large-sized listed companies have opted for the so-called benefit corporation status.
- Investors’ increasing awareness of sustainability issues also contributes to the evolution of issuers’ corporate governance structures. Notable investor behavior in this area includes:
- An increase in the number of Principles for Responsible Investment (PRI) signatories;
- A growing proportion of global assets being managed according to sustainable investment strategies;
- An increase in engagement activities focused on environmental and social issues; and
- An increase in support for environmental and social shareholder proposals.
- Regarding evolution in issuers’ governance practices, ISS data indicates:
- An increase in the use of board-level sustainability committees;
- A notable percentage of companies with at least one director with ESG skills;
- Growth in the use of ESG metrics in executive compensation; and
- The emergence of management-sponsored say-on-climate proposals.
- Lastly, the report highlights the importance of governance best practices in relation to shareholder rights, such as respecting the one-share, one-vote principle and maintaining a high-quality and accountable board, as these practices may also help companies to address environmental and social risks and seize emerging opportunities.