RISK AND REWARD - SHARED PERSPECTIVES

Risk and reward - shared perspectives is a collection of 11 individual essays discussing different aspects of the overriding theme of corporate responsibility and ethics. For our discussion at the Global Forum Pakistan 2011 our focus is on one aspect ie Making businesses more accountable to investors.
This essay discusses the public policy value of making businesses more accountable to their investors, very much in the light of the aftermath of the global financial crisis and the BP oil spill in the Gulf of Mexico, and the huge financial and reputational costs associated with those events.
For this to happen, there needs to be full commitment from companies to identifying and managing all material risks facing them, both in the short term and the long term. These risks must be seen to include risks of an environmental and reputational nature. This needs to be followed up by effective disclosure regulations and enforcement of those regulations by the authorities.
There also needs to be a renewed focus on the importance of shareholders, as the ultimate owners of companies, paying sufficient attention to how companies are being run to enable them to satisfy themselves that the issue of risk is being effectively addressed.
For too many companies, consideration of environmental, social and governance (ESG) issues is limited to activities which are focused on operational cost reduction and reputation enhancement, rather than the identification and management of material business risks. Recent events have highlighted the necessity for a change in these practices. This change will require action from all participants in the investment chain. Regulators must enable this action through initiatives such as the introduction of requirements for a robust management commentary report that ensures the provision of forward-looking strategic disclosures on all material risks, including environmental and social risks.
Institutional investors must scrutinise and use such disclosures to engage effectively with companies on ESG issues and demonstrate transparently to their asset-owner clients and ultimate beneficiaries that they are dealing with ESG risks. Fundamentally, it is argued that environmental and social issues must be placed at the heart of investor stewardship by both investors and regulators. And the general public, whose savings are invested in companies, must become more engaged with their money managers and express their preferences for action on environmental and social issues. Greater accountability to the ultimate beneficiaries would be facilitated by the introduction of strong requirements for pension providers to report to pension savers on the integration of ESG decisions into investment decisions.
Finally, environmental and social issues must be placed at the heart of investor and corporate decision making so that companies, investors and individual savers will be in a better position to prevent or at least mitigate any future financially devastating events such as the banking crisis and the Gulf of Mexico oil spill.
Read the full report:
www.accaglobal.com/accountants_business