NEWS | Research

Toward a new sustainable corporate governance

02 luglio 2021

Toward a new sustainable corporate governance

Condividi su:

The Italian Observatory on sustainability integration into corporate governance was founded in 2014 thanks to a partnership between ALTIS Graduate School of Business and Society of Università Cattolica del Sacro Cuore and the CSR Manager Network, the Italian association of CSR and sustainability professionals. 

To understand the evolution of corporate governance toward sustainability, in 2021 our research team (Matteo Pedrini, Marco Minciullo, and Maria Cristina Zaccone) has investigated the firms listed in the top stock indexes in Italy (FTSE-MIB), France (CAC40), Germany (DAX30), Spain (IBEX35) and United Kingdom (top FTSE100) looking at the main annual documents (namely, the annual report, the corporate governance report, the remuneration report, the non-financial report, and the sustainability report, for a total of almost 900 documents), and submitted a survey to the constituents of the FTSE-MIB index. 

The aim was to understand if and how European listed firms integrated social and environmental issues into their corporate governance systems, with a focus on the allocation of responsibility to the board of directors and board committees, the integration of social and environmental issues in remuneration systems, the directors’ socio-environmental competencies, and sustainability’s integration into management systems. 

From its foundation, the observatory aimed to monitor the evolution of corporate governance systems beyond the economic interest of shareholders with the integration of sustainability-related issues, which led to several reflections on the different mechanisms to allocate responsibilities, set up remuneration policies, and design monitoring systems linked to socio-environmental issues. Corporate Governance Codes in Europe are embracing the concept of sustainability and setting broader objectives for corporate governance systems, promoting a long-term orientation and the creation of value for all stakeholders. The research was not only aimed at providing empirical evidence but also at offering food for thought and at setting the ground for a broader debate on what could be the most effective initiatives to favor sustainability’s integration into corporate governance systems.

Italy is the leader in terms of sustainability committee presence

A first result sees Italy as the leader in terms of integrating sustainability into corporate governance structures. 35 companies out of 40 (87.5%) of the FTSE-MIB assigned the responsibility of overseeing sustainability issues to a specific board committee. The presence of these committees became more established in Italy than in other European countries. A significant diffusion of these forms of governance occurs only in France (72.5%) and in the United Kingdom (65.0%). In Spain (40.0%) and Germany (13.3%) these committees are present to a limited extent. The research also highlighted that many Italian companies opted for the creation of a committee with an explicit delegation to sustainability issues, often associated with other delegations, while abroad it is frequent the presence of committees dedicated exclusively to socio-environmental issues. In Italy, the committee usually consists of four directors, three of which are independent. Furthermore, the committee does not only assume a control function regarding sustainability issues but is often committed to the setting and planning of sustainability strategies. Conversely, the board of directors is strongly oriented exclusively towards a control approach. 

Social and environmental issues find space in executive directors’ variable remuneration

A second result sees Italian companies giving more and more space to social and environmental issues in executive directors’ remuneration schemes. If in 2017 only 40.0% of FTSE-MIB companies linked the variable component of executive directors’ remuneration to sustainability objectives, today 62.5% of companies (25 out of 40) adopt this incentive policy. In Europe, France is the leader in integrating sustainability into remuneration systems (87.5% of CAC-40 companies), also by virtue of the specific recommendations of the French Corporate Governance Code. The other countries are characterized by lower percentages (Spain 48.6%; Germany 40.0%; United Kingdom 35.0%). The incidence of the weight of these indicators remains below the threshold of the relevance of 20% in all countries (even if some companies reach 35.0%). In Italy, it remained substantially unchanged for executive directors (15.0% on average) and has grown only for Chief Executive Officers (from 12.0% in 2017 to 17.0% in 2020.

Sustainability requires specific competencies for the board of directors

A third result worthy of attention concerns the presence of directors with sustainability competencies. The analysis of board of directors’ profiles of FTSE-MIB companies reveals that just over half of the companies (23 out of 40, 57.5%) have onboard members with sustainability competencies. In these companies, on average, one director out of six has sustainability competencies and the presence of these competencies is higher when a sustainability committee is present. The analysis indicates also that Italian firms are investing to develop sustainability competencies in the boards by offering induction programs on socio-environmental issues, in which approximately 76% of the FTSE-MIB boards took part. 

Sustainability managers are crucial if they cooperate with the top management and directors

Regarding the relationship between corporate governance and management systems, the research revealed that sustainability managers are now present in most of the FTSE-MIB companies (93.3%). The main internal point of contact of these professionals is the board sustainability committee, with which it interacts several times a year mainly on the definition of possible scenarios and social and environmental objectives. With the Chief Executive Officer, the interaction takes place every six to nine months to discuss sustainability processes and ratings, while the meeting with the board of directors usually occurs annually. Among the sustainability manager’s activities, stakeholder management processes gained importance. Compared to previous years, sustainability managers are more involved in strategic sustainability planning (75.0%) and more effective in proposing and implementing activities, especially if they collaborate closely with other managers. Collaboration improves when there are managerial task forces dedicated to sustainability, namely bodies composed only of managers and present in a minority fraction of FTSE-MIB companies (14 out of 40, 35.0%).

The link between sustainable corporate governance and social and environmental performance

Companies that integrate sustainability into corporate governance and management systems through multiple forms have a social and environmental performance on average significantly higher than companies that integrate sustainability only in some respects. Relying on Refinitiv database, if the average ESG score of Italian listed companies is equal to 70/100 (where 100 is the maximum score to which it is possible to aspire), the companies that have fully integrated sustainability in corporate governance systems (namely, presence of board committee and managerial task force, directors with sustainability expertise, and ESG objectives in the remuneration system of executives) reach an average of 82/100, in line with the top European countries (Germany: 81/100; United Kingdom: 79/100). Regarding the impact of the different forms of sustainability governance on ESG performance, it emerges that the necessary measures to achieve a sufficient level of performance are the integration of sustainability in executive directors’ variable remuneration (with an average increase of 13.5 points) and the presence of a sustainability board committee. The presence of both elements can be defined as the “basic” configuration of the sustainability integration into corporate governance and management systems, as it allows to slightly exceed the national average. ESG performance improves further with the presence of sustainability competencies in the board of directors, which entails a further increase of 2.5 points in the average ESG score of companies, and with the presence of a managerial task force engaged in the implementation of sustainability initiatives (with an average increase of 6.7 points). Last, the presence of all these elements represents the “advanced” configuration of sustainability integration into corporate governance and management systems, which allows Italian listed companies to position themselves at the level of the main European benchmarks. These findings offer interesting insights, even if it is not possible to establish a causal relationship. The results suggest that a deep integration of sustainability into corporate governance requires substantial changes and efforts but thanks to these latter it is more likely to improve sustainability initiatives effectiveness.

Un articolo di

Matteo Pedrini and Maria Cristina Zaccone

Matteo Pedrini and Maria Cristina Zaccone

Respectively Full Professor of Corporate Strategy and PhD in Management and Innovation

Condividi su:


Scegli che cosa ti interessa
e resta aggiornato