Companies, investors and regulators continue to face tensions between short-term and long-term goals and incentives, tangible and intangible measures of performance, quantitative metrics and qualitative values. In order to thrive, companies must identify and manage a broad and diverse range of stakeholders, with often conflicting demands. For the most part, investors look at a company’s ability to generate positive returns. Many argue that sustainability is the only way forward, and that incorporating ESG factors into corporate strategies will eventually improve client satisfaction and maintain a competitive edge. Such transitions must be carried out against the backdrop of highly scrutinised supply chains, enhanced board independence and senior management accountability, more complex ownership schemes, proliferating shareholder activism, the growing influence of proxy advisory firms, greater rights for minority shareholders, engagement with institutional investors and transparency for retail investors. But these approaches can vary significantly across regions, industries and companies.
Action 10 of the Commission’s Action Plan for Financing Sustainable Growth puts an emphasis on fostering sustainable corporate governance and attenuating short-termism in capital markets. Are existing corporate governance rules and frameworks fit for purpose? What strategic and/or operational aspects are specifically related to ESG factors? What models and expectations are relevant to SMEs compared to large companies? Is there a difference between active and passive investment strategies? And what about the quality of institutional investors’ own governance, fiduciary duties, share voting, ‘stewardship’ and oversight of portfolio companies?