15th February 2021 – Existing processes and frameworks, such as enterprise risk management (ERM), already encourage companies to look at the risks and impact of issues like environmental pollution, human rights violations and climate change.
Creating EU-wide mandatory requirements for due diligence would add administrative costs and could damage competitiveness for European companies, says the Federation of European Risk Management Associations (FERMA).
These comments are at the heart of FERMA’s response to the recent public consultation run by the European Commission on sustainable corporate governance.
Sustainability has been a key topic for FERMA for several years. Its Sustainability Committee prepared the response, which states: “Any initiative in the area of sustainable corporate governance will have a direct impact on the risk exposures (or risk profile) of an organisation—the primary concern of the risk manager—which is why it is vital our voice is heard in this topic.”
FERMA welcomes the EU objective of instilling long-term corporate sustainability in corporate governance.
To achieve this aim, FERMA prefers the ‘minimum process and definitions approach’ with requirements that are risk-based and proportionate to the nature, scale and complexity of the organisation. “Such processes also steer thinking away from a short-term perspective and help map out likely impacts on a wide variety of stakeholders,” states the response.
FERMA believes that directors should take account of stakeholder interests and maximise social and environmental performance in tandem with financial returns. At the same time, FERMA argues, there should be a clear perimeter to the type of stakeholders when it comes to defining directors’ duty of care.
When it comes to potentially damaging effects on corporate sustainability through the supply chain, FERMA argues that the best approach is to further encourage companies to maintain a holistic risk management approach. If the EU wishes to act, it should support guidelines and standards, not create new mandatory requirements.
