Changing Climate in Corporate Governance

International Finance Centres are known for their effective and efficient environment for undertaking cross border trade and the provision of products and services to assist and enhance business operations as well as the preserving of the generated wealth for the families and businesses that use them. Unfortunately we are still seen in the same vein as the wolves of Wall Street in a climate of greed is good and to hell with environmental impact. Is it time that this perception was changed? 

In the last decade, if not longer, there has been an undercurrent of change from beneficial owners and of businesses, whereby they have sought to be conscientious and use their wealth generated in the International Finance Centres for wider charitable purposes and causes close to their hearts inclusive of combating climate change. The same could be said about financial services businesses, though this has been for more local causes rather than world wide. Are we really utilising the innovations, products and services we have at our finger tips to their full potential to meet the environmental concerns of our clients, stakeholders and the wider world?

Regulators are also updating their regulatory frameworks to require that financial service businesses consider their impact in respect of climate change, as seen in Guernsey by the updates to the Finance sector Code of Corporate Governance. I would argue that this goes further than just making sure the office lights are turned off, recycling is undertaken and employees use more environmentally friendly forms of transport. Boards I believe should be looking at the business areas they are involved in and mitigating the effect these have on climate change world wide rather than just attending to their local footprint. This should not be in isolation, but in partnership with clients providing them with opportunities and innovations to assist them in ensuring that the impact of their business activities on the environment can also be mitigated. 

While business activities may be legal they may not be environmentally friendly, Boards of financial services businesses should look at their ethics and environmental risk appetite when engaging with clients that are in sectors that are higher risk for climate change. Where clients do engage in sectors that have a higher risk of environmental damage the Board should be aware of the issues relevant to climate change in that sector and should seek assurance that best practices and international standards are applied to mitigate that effect.  Boards should set out their environmental risk appetite and receive sufficient management information to assess the impact the financial service business has by providing products and services to these clients for their business activities. 

It is not just about the here and now impact of climate change but also the future and not all mitigations will produce net emissions or zero impact. Protecting against the effects of climate change should be looked at with a long term view and in the similar way that financial services businesses have provided for the preservation and enhancement of wealth over the years. This may be by allowing opportunities and investment in green technologies, the setting up green funds or in providing products and services that allow for the philanthropic support of education, innovation, research in understanding how to combat climate change and providing support for the communities that are most vulnerable. This allows for Boards of financial services business to show that they are meeting their obligations under the Finance Sector Code of Corporate Governance and their clients are able demonstrate that they are attending to their environmental responsibilities.

Good corporate governance assists in enhancing reputation allowing people to see that international finance centres, their stake holders and users are more than part of a greed is good culture, looking after their own self interests. It allows for clear evidence that demonstrates that they undertake their responsibilities seriously with a wider world appreciation.  Climate change may just be being felt on our shores but it is certainly knocking at our door.      

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