A call to action on sustainable corporate governance

Mervyn King, Paul Polman, Kerrie Waring, Bob Moritz and Gilbert Van Hassel lead the call for business and finance to support EU efforts to reform corporate governance rules

This article is free, but to access more of our content, you can sign up for a no strings attached 28-day free trial here.

As leaders in business, investment, finance and academia, we welcome and encourage efforts in jurisdictions around the world to take action to embed the concept of sustainable development in corporate governance law, codes and initiatives.

Business sustainability, sustainable finance, corporate purpose and long-term value creation must begin with company boards and the systems of governance under which companies operate.

Director organisations have recognised the urgency of the climate crisis and the need to accelerate progress towards the Paris Agreement and Sustainable Development Goals. To be able to do so, it is crucial that directors positively orientate towards long-term value creation rather than short-term profit maximisation for the company.

Business organisations have committed to move away from the concept of shareholder primacy towards fully addressing sustainability and ensuring that no stakeholders are significantly harmed. Although the law already provides board members with wide discretion when making decisions on behalf of the company on sustainability issues, incentives within existing corporate governance models too often prevent them from taking concrete steps to act on these intentions.

Business sustainability, sustainable finance, corporate purpose and long-term value creation must begin with company boards and the systems of governance under which companies operate.

These moves are also supported by many investors who insist that companies include environmental, social and governance considerations in their risk management. 

Unless and until the systems of corporate governance are reformed to reflect these challenges, they will act as countervailing forces against achieving sustainability objectives. 

As we are nearing the point of no return in the climate crisis, the time has come to act.

This is not simply about businesses adopting sustainability reporting or strategy, but about corporate governance systems redirecting focus towards how companies create and preserve value – for themselves and their stakeholders.

We express our support for the current European Commission examination and consultation on proposals for sustainable corporate governance, focusing on board oversight, mandatory due diligence and aligning board and executive remuneration to sustainability objectives. We agree that this initiative is essential to implement the EU’s Green Deal and its Sustainable Finance action plan. 

We call on all in the business community to express support for these developments, recognising that, far from being preconceived, the notion of sustainable corporate governance has been evolving for a long time, from the very first King code more than 20 years ago, right up to current actions on sustainable finance. 

Sustainable corporate governance can become integral to post-Covid economic recovery, not just in Europe but around the world. We point to clear research findings that sustainable corporate performance equates with better long-term value-creation for the company, encompassed in the concept of sustainable competitiveness.

In conclusion, we affirm that the size of the transformation required in our economy towards sustainability, must include the way in which companies are governed. This stands amongst the root causes of today’s unsustainable business practices. There is a pressing need for comprehensive corporate governance frameworks to achieve true business sustainability. 

Yours sincerely, 

Professor Mervyn King, Chair Emeritus of the International Integrated Reporting Council and author of King corporate governance codes

Paul Polman, Co-Founder & Chair of IMAGINE and former CEO of Unilever

Kerrie Waring, CEO of the International Corporate Governance Network

Bob Moritz, Global Chairman of PwC

Gilbert Van Hassel, CEO of Robeco 

The letter is further supported by over 90 academics, including leading experts Professor Bob Tricker, Professor Robert G. Eccles (University of Oxford), Professor Gerald Davis (University of Michigan), Associate Professor Ioannis Ioannou (London Business School), Professor Armand Hatchuel (Mines ParisTech, PSL Research University) and Professor Blanche Segrestin (Mines ParisTech, PSL Research University).