The ESG framework has been a fixture on the business scene for several years now and is attracting growing attention from both investors and public opinion. The framework lays down the parameters that indicate a company’s commitment to environmental, social and governance issues: in other words, they measure its sustainability, not just on a financial level but also in terms of the Planet, communities and people’s quality of life. The most frequently cited letters in the ESG title are E (environmental) and S (social), while G, which stands for Governance, is mainly linked to gender issues: such as, for example, how many women a company has on its board.
Sustainable governance is, however, far more than this: it is the prerequisite for an effective change in a company’s direction through the use of its management instruments. This is because it defines the specific business model that will be adopted in order to achieve the Sustainable Development Goals (SDGs) set out by the United Nations in the 2030 Agenda, which themselves lay a concrete foundation for the application of the ESG framework.
Promoting ethical leadership in business
This encouraged Enel’s Legal and Corporate Affairs Function to organize esGovernance, a two-day conference held on January 16 and 17 in Rome, with the aim of reigniting debate on the strategic role of multinationals in the global journey to achieving the SDGs in general and SDG 16 - Peace, justice and strong institutions – in particular.
As a Group, we are coordinating discussion about corporate decision-making processes in the context of the Transformational Governance initiative launched by the UN Global Compact, a non-binding Pact that encourages businesses all over the world to adopt sustainable policies. It now has around 17,000 signatory companies and is focusing on broadening the dimensions of governance in the context of ESG investments, by providing a legal framework of new ideas and instruments. In this new context, shareholder interests are no longer the only concern. Instead, the relevant interests of all stakeholders are also taken into account: customers, members of the company’s board, employees, local communities and NGOs.
The business world has a central role to play in enabling States to achieve the SDGs. They can do so by promoting ethical leadership and adopting sustainable choices in a concrete way with the aim of building a relationship of trust with public and private institutions and, simultaneously, between the latter and civil society, thereby bringing about the change the Planet needs.
"First of all, let’s say that it’s very important to see the business model companies want to have in order to achieve the ESG goals. Then, if you decide to pursue certain goals, you also have to decide how you want to do this, and governance is the place where you set the rules for realizing your sustainable goals,” explained Enel General Counsel Giulio Fazio, who chaired the conference. “Sometimes the lack of a connection can lead companies to engage in a kind of greenwashing or socialwashing – in other words, declaring something that’s impossible to check or verify.”
From the myth of “pure profit” to stakeholder capitalism
Aside from the members of our Legal and Corporate Affairs function, authoritative representatives from academia and the General Counsels of the leading companies working in Italy also took part in the first day of work. The plenary session was a sort of multi-step lesson on the theory of the evolution of corporate governance, ranging from Adam Smith to stakeholder capitalism, as well as on the mechanisms that need to be adopted today, from stakeholder governance credibility to the need for companies to declare their purpose, and Enel’s leadership role in sustainability.
“In the area of Governance, we run the risk of negating the effectiveness of the measures we take,” the Group’s CEO and General Manager Francesco Starace said in a video message to the conference.
“We’re seeing rising expectations from investors and shareholders, from communities, from workers and employees, consumers and regulators, for businesses to play a more active role in society. The myth of pure profit is over,” observed Senior Manager Global Governance at the UN Global Compact Michelle Breslauer, who also took part. “For us, Transformational Governance is really underpinned by SDG 16. And when we talk about governance, we think about it both internally to a company, but also externally to society.”
Rule number one: responsible business
“The Global Compact and the Transformational Governance that the UN is trying to promote and in which Enel is playing a major role, are what are needed today,” said one of the speakers, economist Patrick Bolton, Professor at Imperial College, London. “Because for too long, businesses have operated without any consideration of the climate or the environmental impact of their operations. And now we are finding we have reached a point where we realize that we are living on borrowed time, until we destroy the Planet.”
John Armour, Professor of Law and Finance at Oxford University, was, however, optimistic that multinationals will quickly take real steps into ESG territory, citing the example of “the role they have already successfully played in a related space, which is, anti-corruption efforts: they were instrumental in exporting good governance around the world and they can do that once again in this case. This is also because business is capable of delivering innovation.”
“You can apply one simple rule: the rule of responsible business - added Marco Becht, Professor of Finance at the Université Libre de Bruxelles – This means asking the question: am I doing any harm in the pursuit of profit or power? If the answer is yes, then you might want to rethink your business and governance model.”
The hundred-plus participants were divided into three working groups to analyze three case studies with academics of the likes of Carlo Angelici, Umberto Tombari, Juan Sanchez Calero, Tiziano Treu, Auro Maresca, Michel Martone, Laura Schiuma and Maria Beatrice Deli. The aim was to find solutions by changing corporate governance instruments in order to have a tangible effect in the way hypothetical multinationals operate in equally hypothetical – but plausible – crises: international conflicts, human rights violations, and commitment to CO2 emissions reduction.
The crucial role of legal experts in the transformation
The second day of the conference was presided over by the distinguished jurist Sabino Cassese, Judge Emeritus of the Constitutional Court of the Italian Republic and Professor Emeritus at the Scuola Normale Superiore in Pisa, with around 300 undergraduate and doctoral students from Italy, Germany, the Netherlands, the United States and other nations taking part. The case studies tackled were summarized in the course of the session with the conclusions reached by the different groups presented and commented on by specialists. Laura Iucci, Senior Officer UNHCR, the United Nations High Commission, brought those attending up to date on migration and the importance of the Global Compact on Refugees. Since 2018, the private sector has committed to finding concrete solutions, such as access to water, electricity and education, for people forced to flee their countries because of persecution, of which there are now an estimated 100 million.
“Legal experts play a crucial role because global governance and Transformational Governance need new institutions and procedures,” said Professor Cassese, who reflected on the conflicts of interests that the various categories of stakeholders may encounter and the balancing issues that sometimes arise. “This event was very important because it is essential that we discuss these problems because they involve the status of companies.”
“We won’t just be utopian about it – concluded Cassese addressing the audience of experts and students – if we succeed in understanding the dimension of the problems, who the actors on the ground are, including governments and judicial courts, and if we can find the right balance of incentives and sanctions.”