NGOs call on Commission to integrate reforms on directors’ obligations & align incentives with sustainability targets in EU Sustainable Corporate Governance initiative
"Open Letter: An encompassing approach to effective Sustainable Corporate Governance", 31 Jan 2022
Dear Commission President,
We welcome recent information that the Commission will come forward with its proposal on the Sustainable Corporate Governance initiative this February. However, and as already outlined in our previous letter on the 20th of December 2021, the undersigned organizations would like to express their deep concerns that reforms of directors’ duties, mandatory corporate sustainability targets and related incentives may not feature in the forthcoming proposal...
We therefore urge the Commission to ensure the two following key recommendations are integrated in its proposal.
- Clarify existing directors’ obligations with regards to strategic oversight of sustainability matters and related due diligence obligations. Those must form an integral part of companies’ strategy. This undoubtedly requires measurable, specific and time-bound science-based targets - accompanied by transition plans, to ensure alignment with EU’s international commitments on climate change in particular. On this front, the urgency of ensuring a much greater convergence of actions of all actors - and most importantly, of the private sector, calls for dedicated corporate targets, a view increasingly shared by institutions, civil society organizations, investors and companies themselves.
- Aligning incentives for actions with sustainability targets: all across the EU, many companies have already made initial moves on this. It is time to support and expand those initiatives. Incentives for executive actions have reflected for too long the overwhelming priorities of companies: short-term financial profits. Sustainability is emerging as a challenge and an opportunity for companies. The remuneration of those who guide and steer their direction must be designed to support this transition. As highlighted in the letter published on the 26th of January by 25 EU business leaders: “To give more weight to the long term, it is necessary to integrate it into short-term governance tools. [...] This makes it possible to get away from the sometimes contradictory injunctions between financial performance and environmental performance”
The European Commission must stay on course. The initial ambition of this initiative was an example of European leadership. We call on you to ensure that the proposal reflects that and steers the shift towards the sustainable European economy that citizens are aspiring to...