ThinkTWENTY20

Environmental, Social and Governance (ESG) reporting by corporations was once of interest to a small group of investors and others. Now, with the growing interest in environmental concerns, ESG has become a major area of interest. Companies have long had to report to their investors, but according to Chris Ruggeri, national managing principal at Deloitte, in reporting on Deloitte’s recent CEO survey, “CFOs and IROs have a growing list of stakeholders beyond Wall Street: customers, employees, vendors, regulators, philanthropists, social responsibility monitors and others who want to know how their company’s strategy and financial performance are benefiting their community and the world at large.”[1] 

According to a report from Morgan Stanley, the number of S&P 500 companies publishing some form of ESG disclosure increased from 20 percent in 2011 to 86 percent in 2018, a massive change for companies. And stakeholders are making use of the information by broadening the range of metrics used in evaluating corporate performance. This is consistent with the recent statement of the Business Roundtable on the purpose of a corporation, which can be found on its website. It broadens the purpose of companies well beyond simply making money, although that is of course still central and very important, but does include the idea of supporting the communities in which they work, respecting the people in their communities and protecting the environment by embracing sustainable practices across their businesses.

High flying rhetoric to some, perhaps, but it is signed by 181 CEO’s and the Roundtable is a very influential source.  

[1] IR Magazine, “Activism, guidance and purpose: The IR issues on the minds of CFOs”, Chris Ruggeri, Feb 19, 2020

The European Securities and Markets Authority (ESMA) recently published a Strategy on Sustainable Finance which sets out how ESMA will include Environmental, Social, and Governance (ESG) considerations into its work. A key priority of 2020 will be the completion of a regulatory framework for disclosure requirements on sustainability-related disclosures in the financial services sector.

"’Key pillars supporting the shift towards a more sustainable financial system are the measurement, verification and disclosure of ESG factors. It is important that public authorities step in and establish robust ESG standards and supervise the relevant actors and products to prevent the risk of greenwashing;’ said Steven Maijoor, Chair of ESMA, in a keynote address on sustainable finance issues at the European Financial Forum in Dublin.” (source) 

You can find the ESMA strategy document here.

Cybersecurity is a major area of concern for companies and for their Boards of Directors. So the directors need to look into the policies and procedures around cybersecurity in some depth. Directors generally conduct their work by determining how management is handling the issues, but to do that, they need to know what the issues are. In other words, they need to know what questions to ask. 

Cybersecurity issues revolve around the nature and extent of the underlying risks involved. The questions the Directors must ask address the risks and attempt to determine what safeguards are in place, where the vulnerabilities are in the organization, what assets are at risk, how management is organized to handle a breach, what insurance they have, and other similar questions.

The answers to the Directors’ questions must be complete and supported by concrete evidence.

in 2019, CPA Canada released a short guide to help. It’s titled “Twenty Questions Directors Should Ask About Cybersecurity” and is available at https://www.cpacanada.ca/en/business-and-accounting-resources/other-general-business-topics/information-management-and-technology/publications/questions-directors-should-ask-about-cybersecurity.

Something for every Director’s briefcase.