The G Factor

Has Covid been an inflection point for corporate governance?

First, we think it is important to highlight that, while governance can generally be defined as a system of entities that governs an area of activity, the term is frequently used to describe different realities. The development of responsible investment is closely linked to the consideration of ESG¹ criteria. While the UN’s Sustainable Development Goals are intended to comprehensively address environmental and social issues, they only partially address governance issues.

We would add that good governance is central to fostering sustainable development at the company level. We believe that a well-functioning board with a good representation of companies’ stakeholders, robust internal controls, and executive remuneration that integrates environmental and social issues into decision-making processes are all critical.

In 2020, as the pandemic hit, the need for corporations to broaden their definition of ‘stakeholders’ and consider their broader impact on society both greatly increased. Fortunately, many companies had already started to question their business models and how they interact with suppliers, contractors, customers and communities.

How so?

For example, back in 2019, the Business Roundtable, a group of 250 CEOs of large U.S. companies, announced that they no longer would prioritize shareholder value. Instead, they committed to stakeholder value and embracing sustainable practices across their businesses and working to protect the environment².

The pandemic severely impacted global public health, as well as our economies and societies. Companies faced many challenges in handling day-to-day operations while protecting the health and financial security of their employees. It’s our view that companies adopted short-term measures such as paid leave, donations to hospitals, provided employees with bonuses, and extension of payment terms for suppliers to support their stakeholders.

While beneficial in the short-term, we believe the transition towards fairer capitalism will be supported by longer-term measures, such as a better representation of employees on boards or including sustainable development criteria in top management’s compensation.

How do you support the transition towards fairer capitalism at Mirova?

In 2020, we encouraged the companies we engage with to be cautious when it came to dividend distribution, but also to maintain employment, prioritize health and safety, and maintain supplier/customer relationships.

We aim to invest in companies that are integrating sustainability in their corporate governance. As responsible investors, we seek to have the largest positive impact in focusing on the creation of shared value over the long term.

This long-term approach of responsible capitalism has even been embedded by our recent recognition as a B-Corp³ and mission-led company⁴.

What are the levers to encourage changes in corporate governance?

We actively engage with companies to create an environment conducive to responsible investment. We encourage companies to adopt objectives that are in line with the UN Sustainable Development Goals (SDGs) and to improve transparency in relation to their sustainability efforts and their overall practice.

Alongside focusing on mitigating climate change or preserving biodiversity, we highlight our expectations regarding the integration of sustainability to the core of their governance and demonstrating enhanced transparency on sustainability impacts.

We also focus on reducing inequalities,(including, shared value creation and gender diversity. We also seek to promote our vision of responsible governance through our voting policy. As investors, we believe that if companies comprehensively integrate sustainability in their business practices, it will lead to positive, long-term value creation that benefits both shareholders and the broader stakeholder community.

¹Environment, Social, Governance
²Business Roundtable
³Fore more information
⁴For more information

The information provided reflects Mirova’s opinion / the situation as of the date of this document and are subject to change without notice. All investing involves risk, including the risk of capital loss. This material is provided for informational purposes only and should not be construed as investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of services. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The views and opinions expressed are as of the date indicated, and may change based on market and other conditions. There can be no assurance that developments will transpire as forecasted. In Switzerland: This material is provided by Natixis Investment Managers, Switzerland Sàrl, Rue du Vieux Collège 10, 1204 Geneva, Switzerland or its representative office in Zurich, Schweizergasse 6, 8001 Zürich. MIROVA Portfolio management company French Public Limited liability company Regulated by AMF under n GP 02 014 RCS Paris n 394 648 216 Registered Office 59 Avenue Pierre Mendes France 75013 Paris. Mirova is an affiliate of Natixis Investment Managers