This is the first of a series of interviews intended to help our IDN members grapple with the ESG topic. Given the recent importance of EU regulation in the area of ESG, and reporting specifically, we chose to conduct the first such interview with a truly long-standing expert in the matter.
Pascale Moreau is a seasoned professional with over 15 years in public affairs across diverse industries including textiles, ICT, and healthcare.
As an active citizen and nature enthusiast, she specializes in sustainable development strategies and adeptly navigates complex legal landscapes. Throughout her career, Pascale has excelled in facilitating discussions, bridging differences, and guiding stakeholders toward common goals, driving positive changes. In 2019, she founded Ohana to help companies formulate sustainable development strategies tailored to their markets’ challenges and opportunities.
In your view, drawing on your experience, what is the essential role of a board of directors in public affairs and policy engagement?
In the realm of public affairs, the pivotal role of shaping strategy is essential for aligning agendas with business needs, extending its impact to associations and multi-stakeholder initiatives. The Board of Directors plays a crucial role in navigating this landscape, bridging internal workings with external dynamics. Larger organizations in familiar sectors often designate roles within the Board for public affairs, while in newer sectors, its introduction is met with urgency and the need for preparedness.
In my experience, organizations attuned to public affairs quickly respond to its nuances, ensuring the Board is well-versed. During the 2017-2019 transition, this was evident in the textile industry. In multi-stakeholder initiatives, boards may appoint a specific individual for public affairs, but their effectiveness relies on influence and the ability to drive recommendations, contributing substantively to boardroom decision-making.
You mentioned the unique default structures in different industries, particularly noting the relatively recent engagement of the textile industry. From a European standpoint, which industries have historically been firmly established in public affairs, and, in broad terms (excluding specific businesses), which ones generally demonstrate a greater inclination for such engagement?
In sectors like ICT and electronic equipment, a sustainability lens is integral, driven by long-standing regulation. Leadership in these industries comprehends the importance of sustainability investments. Similarly, food, beverages, and agriculture, well-represented in Brussels, showcase heightened awareness and robust organizational structures. Operational roles handle day-to-day tasks, but top executives from these sectors take the lead in significant events like COP 28, indicating maturity in global sustainability engagement.
Conversely, some sectors, like textiles, historically lagged in sustainability but are now catching up. This observation highlights a proactive stance in regulated industries, contrasting with a slower initial embrace in sectors like textiles.
How can boards of directors augment their capabilities, particularly in the context of public affairs and policy development, building upon our recent discussion?
In organizations with dedicated public affairs teams, fostering collaboration is crucial. Spending quality time with the head of public affairs and national teams in key markets ensures a nuanced understanding of legislative landscapes, focusing on areas like sustainability, trade, and digital domains. Regional nuances in public affairs, whether in the US, EU, or Asia, underscore the importance of engaging with governments, even where public affairs practices may be less prevalent, as such engagements yield tangible business impacts.
Promoting dialogue between business and public affairs professionals, especially in the same room, facilitates mutual education on legislative changes’ financial and strategic implications. For organizations without a dedicated public affairs team, integrating this perspective into MBA programs ensures early recognition of the broader business advantages of engaging with stakeholders. Seeking insights from organizations with established public affairs functions or hiring specialized consultants becomes invaluable in navigating an evolving landscape, emphasizing collaborative stakeholder engagement for a sustainable future.
What are your anticipations for policy trends in the mid and long term, both globally and within Europe? How do these expectations influence the role of a board of directors?
Navigating policy expectations, especially in the realms of digital and sustainability, proves challenging, signaling heightened regulations for industries like textiles. In the mid-term, the EU Green Deal holds significance, serving as a foundational benchmark. For businesses, compliance with voluntary legislation becomes a pivotal board-level decision, prompting a comprehensive reevaluation of processes and external communication to shareholders about the nuanced balance between profitability and compliance.
In the long term, the momentum for sustainability initiatives persists, albeit with a potential EU-level slowdown for implementation focus post-2024 elections. Businesses seek guidance for compliance, placing the Board of Directors in a central role to identify hotspots and manage risks during implementation. Globally, Europe’s lead in sustainability trends, such as extended producer responsibility, might influence global replication. The Board’s responsibility extends to understanding and supporting the entire supply chain, allocating funds for implementation, and advocating for a smooth transition, emphasizing a holistic, 360-degree perspective for a sustainable future.
In your view, what are the primary priorities for boards of directors in the short term, specifically in 2024? Given the ongoing developments within the EU and globally, what aspects should boards emphasize?
Key directives, namely the Corporate Sustainability Reporting Directive (CSRD) and the European Corporate Sustainability Due Diligence Directive (CSDDD), are currently at the forefront, emphasizing due diligence. Despite potential reductions in board liability in the CSDDD, companies must exhibit due diligence for responsible business recognition. The Board of Directors holds a pivotal role in shaping policies and driving transformative change in response to these directives.
The Taxonomy Regulation, initially perceived as relevant mainly to investors, extends its reach to companies, notably impacting the Board of Directors engaged with investors. Mandating reporting on investments, it requires the Board to establish proper reinvestment processes, accentuating its role in driving impactful change.
In 2024, a crucial year of transition in the EU, marked by elections and industry reevaluation, significant legislative changes are anticipated. The Board must proactively address this, allocating resources and initiating comprehensive compliance projects for short-term action. Obtaining insights from public affairs or legal teams is crucial for informed business decisions, not only within the EU but also globally, emphasizing the paramount role of the Board in navigating evolving regulations.
Concerning directors’ liability, particularly amid the ongoing deliberations on the European Due Diligence Directive, where does this aspect align within the broader European legislative framework you are navigating?
The Corporate Sustainability Due Diligence Directive (CSDDD) represents a significant move by the EU to hold businesses accountable for their social and environmental impacts. While the official text is pending, a crucial political agreement was reached in December 2023, with finalization expected in Q1 2024. The scope of the directive includes companies with 500+ employees or a global annual turnover of 150+ million and those with 250+ employees and a turnover of 40+ million in high-risk sectors like textiles, food, and minerals. The construction sector is also under consideration for inclusion. Parent companies of large groups and non-EU companies meeting turnover thresholds in the EU are encompassed, while the financial sector is partially included, focusing on “upstream” due diligence and climate-related obligations.
A key feature is the requirement for companies to adopt a climate plan aligned with the Paris Agreement. Compliance with the Corporate Sustainability Reporting Directive (CSRD) is linked to the adoption of CS3D climate plans. Larger companies, with over 1000 employees, can tie additional financial incentives, such as variable remuneration, to plan fulfilment. The directive introduces civil liability for damages caused by a company through intent or negligence, with a minimum 5-year limitation period. Notably, director duties have been deleted from the provisions. While these provisional agreements provide a framework, the final text is pending, and technical meetings are scheduled to address open questions, with the European Parliament voting in plenary in April and Council approval anticipated in April/May. The financial sector’s extent of inclusion and additional details may be refined in the final legislation.
You noted an anticipated release of a substantial volume of legislation at the end of Q1 or the beginning of Q2 2024. Could you offer an overview, at least by name, of the key legislations you expect to be significant?
In 2023, notable sustainability regulations reached finalization, including the Deforestation Regulation, EU Corporate Sustainability Reporting Directive (CSRD), and Empowering Consumer Directive. While the Empowering Consumer Directive’s final text is pending, an agreement outlines a framework for sustainability communication. Anticipated finalizations in Q1-Q2 before the EU elections include the Packaging Regulation, Forced Labour measures at the EU level, Eco-design Legislation, and the Right to Repair. However, advanced regulations like Green Claims Directive and the Waste Framework Directive are unlikely to be finalized.
The urgency to avoid disruptions before the elections is evident, even if subsequent guidelines and secondary legislation are needed for clarity and refinement.
How should the Board of Directors respond when companies see impending policy and legislative changes, particularly related to ESG, solely as compliance requirements rather than strategic opportunities?
The establishment of common rules marks a satisfying moment, potentially mitigating free rider issues. Anticipating stress among companies, a crucial response involves creating a compliance team and undertaking a comprehensive compliance project. This intricate exercise requires mapping sustainability, digital, and trade considerations, necessitating a dedicated individual reporting directly to the Board of Directors. The seriousness of compliance is underscored by its potential impact on the business’s existence, demanding a proactive stance and ongoing commitment, especially in allocating resources and enhancing IT infrastructure. Ensuring the board’s dedicated focus is crucial, with potential reconsideration of its composition if necessary, reflecting a commitment to evolving landscape expectations until 2028-2030.
Dr. Pamela Ravasio is the founder and managing director of Shirahime Advisory, a Corporate Responsibility Governance boutique consultancy. She serves as fractional Chief Sustainability Officer for companies and advises boards on ESG and governance. With a background in roles like Global Stakeholder Manager, she played a key role in making the European outdoor industry a leader in future-proofing.
She currently sits on the boards of Polygiene AB and INSEAD’s International Directors Network.