Why We Need Transformational Governance

A word from Giulio Fazio


To say that we live in challenging times would be something of an understatement. Dealing with the climate crisis, the aftermath of the Covid pandemic, geopolitical uncertainty and energy insecurity requires concerted, international action, not only by governments and institutions, but also by companies. And it was with this in mind that the UN’s Secretary-General António Guterres recently called for a reimagined social contract to address the world’s most pressing challenges. This is the basis for the UN Global Compact’s Transformational Governance initiative, of which the Enel Group is Patron. Our Group prides itself on its leadership role in the energy transition and we are convinced that multinationals like ours can also lead the way in bringing about change in terms of governance.


Sustainable Development Goals

In 2015 the United Nations member states adopted the 2030 Agenda for Sustainable Development. It brought together a series of previous commitments under one roof and set them out in 17 Sustainable Development Goals or SDGs, which cover everything from protecting the environment to promoting education and human rights and fighting inequality. SDG 16 is dedicated to “Peace, Justice and Strong Institutions.” The Global Compact believes that “this goal is the least understood by business but arguably the most consequential to business.” In actual fact, SDG 16 is one of the main reasons why the UN Global Compact is promoting Transformational Governance.

Traditionally, governance for a company meant making a profit (the “bottom line”) and keeping shareholders happy. Transformational Governance still entails making a profit, but this needs to coincide with the interests of other stakeholders, not only employees and customers, but also the communities where a company operates. Its performance is therefore measured in terms of its environmental and social impact, and investors and consumers are increasingly taking this into consideration when evaluating a company and its products. According to the CBI, the Confederation of British Industry, two thirds of investors now take ESG (Environmental, Social and Governance) factors into account when deciding where they want to put their money.


Avoiding greenwashing

The UN Global Compact defines Transformational Governance as “an approach, and not a legal concept, that businesses can use to become more responsible, ethical, inclusive and transparent, for the purpose of promoting responsible corporate behavior, improving ESG performance.” I would add that detailed information is essential. It’s too easy for a company to simply declare its intention to reach noble environmental and social goals, but without a transparent process for verifying what tangible measures it is implementing, there is a serious risk of greenwashing or what I like to call “social washing.” By establishing governance measures that oblige a company to take into account the interests of the relevant stakeholders and by creating a system of KPIs to monitor the results, not only can you see how your company is performing, but you can also show the impact of your sustainable strategy. We also believe that, as Chief Legal Officers, we can do a lot in this respect. We are like a trade union: not only do we know the rules, but also how the rules must be set in order for them to work. Indeed, we believe that lawyers need to start using a creative and innovative process in establishing rules and standardizing best practices. Countries can, of course, pass all the laws they want, but multinationals work in many countries, including those where there isn’t sufficient legislation regarding ESG principles. And so, we would argue that, if lawyers do their job properly, then they can be an asset not only to their companies and their investors, but also to the sustainability of the planet and the people who live on it, both now and in the future.


Asking the right questions

Last month we had the privilege of organizing the “esGovernance” conference in Rome. The distinguished selection of guest speakers included the UN Global Compact’s Michelle Breslauer, who shared the view that multinationals can promote Transformational Governance, as they have “a broad and active footprint” and an influence on governments. She added that “Enel’s leadership and support of this initiative will help inspire companies around the world to meet these challenges and work towards sustainable solutions.” John Armour, Professor of Law and Finance at Oxford University, pointed out the multinationals have already played a successful role in anti-corruption efforts. They have been instrumental in exporting good governance. In the case of laws in the US, the UK and the EU, “multinationals can act as channels through which those standards are then applied around the world.” Marco Becht, Professor of Finance at the Université Libre de Bruxelles, was asked “How can corporate governance be reformed to achieve SDG 16?” For us, his answer summed up what Transformational Governance is all about: “Well, you can apply one simple rule of responsible business, by asking yourself, ‘Am I doing any harm in the pursuit of business or power?’ And if the answer is ‘Yes,’ then you might want to rethink your business or governance model, and if the answer is ‘No,’ that’s already very good, and if you can conclude, ‘I’m actually doing something good,’ then you’re working for the right company!”