Company law around the world requires the directors of a company to act in the interests of its long-term success. Fiduciary duty imposes a duty of care requiring directors to act in good faith towards the stakeholders of a company.
Contrary to the short-cut logic that the directors have a sole duty to generate wealth for shareholders, it is well-established that for a business to be successful it needs to have regard to its customers, employees, suppliers, communities and the environment. There is over a century of litigation against directors that have failed to properly discharge their fiduciary duties and it continues to be costly with the stakes getting higher as expectations continue to grow around systemic ESG-related risks like climate change.
The current COVID-19 crisis underscores the need for directors to exercise good stewardship to build resilience and fulfil a purpose beyond simply short-term profits.
“If you look at the duties of the board around the world, they are classified into three categories: the board has a duty to take care of the company and of the long-term interests of the company, it has a duty to exercise due diligence and reasonable care and a duty to comply with external disclosure requirements.
To ensure business remains resilient and successful it must move from being the problem to bringing the solution, and in order to do this, board directors have a duty to take charge and lead this change.”
Board directors’ duties and ESG considerations in decision-making
This report, written in collaboration with Baker McKenzie, covers board directors’ duties and the consideration of environmental, social and governance (ESG) issues to help build stronger board decision-making.
This report, which draws primarily upon perspectives and insights from UK and US legal and regulatory structures, seeks to explain why sustainability matters and why it should be included on board agendas as a matter within their remit. It considers how boards should address sustainability in the context of their company’s strategic objectives and business model.
Download the full report here.
We have curated a list of resources that may be useful to board directors, this is not intended to be an exhaustive list, but rather an example of further reading that can be done to enhance board awareness of key environmental, social and governance considerations.
If there are any resources that you think are missing, or that we should refer to, please do not hesitate to email us.
INSEAD Corporate Governance Initiative
Latham & Watkins
Earth on Board & Deloitte
Oxford University & Economics of Mutuality
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World Business Council for Sustainable Development
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