EU: Commission launches public consultation on sustainable corporate governance

In more detail

On Monday 26 October 2020, the European Commission launched its widely anticipated public consultation on its Sustainable Corporate Governance Initiative, which asks how the EU can help businesses further embed sustainability into the corporate governance framework. The launch of the consultation follows the announcement in April 2020 by Dider Reynders, the European Commissioner for Justice, that the Commission would introduce new EU legislation to foster long-term sustainable and responsible corporate behaviour as part of the Commission’s strategy to achieve carbon neutrality under the European Green Deal (please see here for our commentary on this).

The consultation, which is available here, contains 26 questions on the need for EU intervention on sustainable corporate governance and on the scope and structure of any such intervention. The questions fall largely into two categories that correspond to two studies conducted by the European Commission – one on due diligence requirements through the supply chain and the other on directors’ duties and sustainable corporate governance.

• The study on due diligence requirements through the supply chain indicated that businesses and other stakeholders are largely in favour of mandatory and enforceable EU human rights and environmental due diligence laws. Questions in the consultation focus on the scope, application and enforcement of any such due diligence requirement.
• The questions on directors’ duties focus on whether and how directors should balance the interests of various stakeholders in exercising their duty of care and whether these stakeholders, which may include employees, civil society organisations etc., should play a role in enforcing directors’ duties.

The consultation also seeks views on other methods of integrating sustainability into corporate strategy by, for example, seeking to improve sustainability expertise on boards, altering the remuneration of directors, and strengthening the engagement of stakeholders.

The consultation closes on 8 February 2021 and the responses will supplement the findings from the two studies and help to shape the Commission’s legislative proposals, which we expect later in 2021.

Given the timing of the new EU legislation, post-Brexit UK will not be subject to it.  It is likely however, that the UK will face pressure to pass domestic legislation similar to the proposed EU law given the broader trend toward mandatory reporting and standards on environmental, social and governance concerns.

We will continue to monitor and provide further commentary on the EC’s consultation and legislation. If you have any questions, please do not hesitate to contact us.