In a recent post, we discussed investors' growing interest in environmental and social (E&S) governance. As a recent report published by the Canadian Coalition for Good Governance (CCGG) demonstrates, public company boards are no less attentive to growing shareholder interest in E&S issues. The Directors' E&S Guidebook (Guidebook), which is the product of consultations with industry leaders in the management of E&S factors, provides practical insights and recommendations for effective board oversight and disclosure of E&S matters.
Companies have good cause to respond to investor interest in E&S matters. For some, past incidents provided the impetus for the implementation of effective management structures. However, the report emphasises that the value of E&S structures is not limited to a preventative function; E&S structures have the potential to significantly increase shareholder value. In fact, the Guidebook found that many companies credited E&S policies with talent attraction and retention. CCGG also predicts that this association will persist because Millennials are more likely to monitor and demand commitment to E&S matters from the companies they work for and invest in.
The Guidebook also suggests best practices for the management of E&S issues. It outlines a number of E&S governance recommendations under eight governance topics. For example, under the topic of board practices, the Guidebook recommends that boards ensure that E&S priorities are a regular discussion item in meetings and design an escalation mechanism so that E&S issues may be brought to the attention of the board in a timely manner.
The Guidebook also provides four key insights from companies with existing E&S structures. First, a company's unique experiences and drivers will determine the E&S factors that are high priority. Second, a robust approach to managing E&S risks is developed incrementally. Companies should view their approach to E&S matters as a central element of their corporate culture, strategy and operations. Third, the tone set by management is crucial to institutionalizing new behaviours motivated by E&S factors. The board must communicate its commitment to E&S issues and elevate E&S management to a long-term corporate priority. Finally, a company should be transparent about how its E&S approach creates value for its stakeholders. This will create trust and goodwill.
With these recommendations and insights in hand, companies will have a strong starting point for the integration of E&S governance into core business practices and priorities. The full report can be found here.
The author would like to thank Samantha Black, summer law student, for her assistance in preparing this legal update.
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