Sustainable Governance: An unconventional trend

We need more incentives and fewer restrictions if we want to help more companies make the transition to sustainable governance, argues Emil Radev.
Emil Radev | Photo credit: European Parliament Audiovisual

By Emil Radev

Emil Radev (BG, EPP) is a shadow rapporteur for Parliament’s Sustainable Corporate Governance report

02 Jun 2021

According to recent studies, many companies, particularly those listed in regulated markets, are facing increased pressure to focus on generating short-term financial returns, and on distributing much of their income to shareholders. This practice can be detrimental to the long-term development of these companies, yet it is a trend that seems commonplace throughout the European Union. Such policies can hamper investments that could otherwise be used for transitioning to sustainability, improving production facilities, fostering innovation, modernising practices, and training employees.

Today we are witnessing business trends that used to be unconventional for companies - the achievement of economic goals is gradually becoming more closely linked to the fight against climate change, the overcoming of social problems, and more generally, sustainable development. These goals are achievable in my view, but they will take time to deliver. It is therefore important that we help businesses make the transition to a sustainable governance approach.

First, it would be helpful to create a new business culture of sustainable development for company directors. Such a culture will assist directors in leading their companies in the right direction, in terms of sustainable corporate governance, and in delivering the common goal of promoting greater sustainable value creation.

“Our goal is to create incentives for European companies to set sustainable goals, rather than setting more restrictions and hidden traps”

Our political group, the European Peoples’ Party (EPP) of course, supports the sustainable corporate development and governance of European companies. However, we do have certain reservations regarding the texts adopted, as we fear that, at a time of crisis - like the one we currently find ourselves in - it is very important not to burden European companies with additional administrative requirements. This is especially true for small and medium-sized enterprises (SMEs), which is why we considered it crucial not to include SMEs in the scope of future legislation.

A new study on the impacts of the COVID-19 pandemic shows that companies that perform strongly on social and environmental issues have been more resilient to the crisis. Companies that perform well in terms of sustainability outperform their peers and turn out to be more competitive. This is because measures had already been introduced before the pandemic. But if we impose major restrictions during a crisis or require companies to implement measures that are unaffordable to them, we risk hampering their competitiveness, which in some cases could lead to bankruptcy.

We support the principle that EU companies must make every reasonable effort to ensure that practices which undermine human and social rights, as well as labour protection, are not tolerated within the Union and do not take place in our supply chains. However, this cannot be an obligation for entire supply chains, because in practice such an obligation is impossible to uphold for most companies.

Our position is that we must approach our proposals reasonably and, above all, proportionately. Otherwise, there is a risk that sustainable management strategies will become an undesirable burden on companies. Ultimately, our goal is to create incentives for European companies to set sustainable goals, rather than setting more restrictions and hidden traps. 

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