Should “due diligence” director duties be enhanced for ESG?

Director Duties YouTube Thumbnail

– PRI is pushing for directors to have a fiduciary duty to consider ESG.

As food for thought, here’s a old note from PRI (Principles for Responsible Investment) about how PRI responded to the EU Commission’s consultation on its planned sustainable corporate governance initiative (here is PRI’s full response). Here’s an excerpt:

The introduction of a due diligence duty binding on companies in order to ensure that they are aware of the risks and impacts around the environment and human rights is an area on which we welcome action. A mandatory environmental and human rights due diligence legislation would go a long way to ensure that shareholders and other stakeholders are considered in the governance, strategy and operations of EU companies.

From an investor perspective, an EU due diligence duty binding on companies would enable them to compare corporate performance against this baseline standard for improved investment decisions and stewardship activities, and in the process, help to drive better financial, economic, environmental and social outcomes. Identifying and managing risk and impacts to people and the environment is core to the success and resilience of a company.

Such an EU due diligence duty should be binding on all companies with operations within the EU of a specified size, including those not headquartered in the EU, and should build on recognised international standards such as the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

The Commission should also ensure that these standards are reflected in member-state legislation to achieve a level playing field across member states. Appropriate accountability and enforcement of the due diligence duty will be necessary to make the duty effective and ensure it provides access to remedy for people subject to harm from corporate activities.