ESG and Corporate Governance – What to Expect?
21 April 2022
Companies have increasingly been implementing ESG-related factors into their business operations and governance. Sustainability has changed from being a compliance or communications issue to serving as a competitive differentiator and a point of strategy. Companies in the Nordic countries have been better than many in leading the way in this regard. Sustainability has also emerged as a key policy for corporate law. The EU, in particular, has introduced a number of regulatory initiatives related to sustainable corporate governance.
In a recent blog, Partner and Doctor of Laws Klaus Ilmonen summarises different views on the future developments of corporate regulation in the EU. Below is an executive summary of the blog post.
- Corporations are facing demands for more accountability for the social and environmental aspects of the business enterprise from interest groups and regulators alike.
- Several ESG-related regulatory initiatives are pending at the EU and national level, including in Finland.
- The EU Commission has published a proposal for a directive on corporate sustainability due diligence, which would require large corporations to take measures to ensure compliance with human rights and environmental standards through the value chain.
- Going forward, the corporate landscape is likely to be characterised by increasing reporting requirements, growing risk of corporate litigation, more detailed corporate regulation, and the emergence of new corporate interest groups.
- These developments will have a considerable effect on corporate governance and on the boundaries of the corporation. The role of the board of directors will be further emphasised, as they will answer to different corporate constituencies, and corporations will increasingly be liable for actions of not only their subsidiaries and affiliates, but also of their suppliers through the value chain.
- Corporations are already incorporating sustainability into corporate strategy and operations; going forward, monitoring and accountability of these factors will increase significantly.
Klaus Ilmonen is a professor of practice at the Hanken School of Economics, where he is focused on corporate governance and corporate law, including ESG and sustainability matters. He has recently published work on the political aspects of corporate governance and ESG.
Klaus is supporting law students in Helsinki in organising a legal seminar for corporate lawyers on the relationship between corporate governance and growth. Klaus will chair the seminar and discuss corporate law developments in light of recent EU corporate governance initiatives and sustainability policies.