Corporations and investors should work together to ensure that sustainability is integrated throughout businesses, in order to establish long-term value creation, according to a report from the UN Environment Programme Finance Initiative (Unep FI).
The report – Integrated Governance – A new model of governance for sustainability – argues that businesses should embrace integrated governance, in which they put sustainability at the heart of their governance and corporate board’s strategic agendas, and investors should play a key role in making it happen.
Unep FI’s asset management working group (AMWG), which launched the report, states that the study aims to show why governance structures at the majority of corporations are “not well suited to advancing sustainability effectively”.
Director Charles Anderson said, “The world’s largest 1,000 publicly listed companies represent more than 50% of the world total market capitalisation. There is an increasing concentration of economic activity in a relatively small number of corporations and the growing impact on the environment and society of these entities is now substantial.”
He added that making governance for sustainability a reality at the board level across companies would depend on different stakeholders, including assets owners and investment managers, working together to promote sustainable practices.
The report notes that investors and other stakeholders are becoming increasingly interested in sustainability policies and how issues, ranging from climate change to human rights, will affect business operations.
However, the organisation adds that governance structures and operations tend to “ignore sustainability or pigeonhole it”, despite demand for inclusion.
Julie Fox Gorte, senior vice-president for sustainable investment at Pax World Investment and co-chair of the Unep FI AMWG, commented, “Today, the argument over whether sustainability issues are financially material is fading and the focus has turned to how – rather than if – these factors should be integrated into investment processes and corporate practices.”
The report aims to provide institutional investors with recommendations that can be considered when engaging with companies and exercising their ownership rights. For instance, it suggests that environmental, social and governance (ESG) performance targets should be tied to executive compensation.
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