The government's proposed reforms to corporate governance must place long-term sustainability targets ahead of short-term financial gain, IEMA has said.
In its response to the green paper, IEMA stressed that, although a financial framework is important to the UK’s continued economic growth, greater investment must be made to ensure corporate sustainability is both commercially viable and environmentally sustainable. The green paper states: ‘The UK has long been regarded as a world-leader in corporate governance, combining high standards with low burdens and flexibility.’
IEMA believes that, to remain a world leader, the UK needs to directly address the imminent issue of sustainability. Tougher requirements are also needed on transparency, accountability and stakeholder engagement.
Martin Baxter, IEMA’s chief policy advisor, highlighted the need to reassess governance to embed long-term sustainability ahead of short-term fiscal gain. ‘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,’ he said. ‘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 the 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.’
The consultation focuses on the challenges of ‘increasing shareholder influence over executive pay and strengthening the employee, customer and supplier voice at boardroom level.’ In its response, IEMA has called for greater accountability through enhanced corporate transparency and directors’ culpability.
‘Companies have a crucial role to play in improving economic and social value in a way that is resource-efficient and low-carbon, enhances natural capital and respects human rights,’ it says. This embedded sub-culture of sustainability will plant the seeds for a more maintainable supply-chain and reaffirm public trust, IEMA adds.
‘We do not believe that effective corporate governance should be differentiated on the basis of company ownership structure,’ said Baxter. ‘If there is a genuine desire from the government to improve trust in companies, then underpinning transparency and accountability safeguards need to apply equally to public and private companies. This means extending non-financial reporting.’
