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The 2020 Code places substantial emphasis on sustainable value creation. In order to help companies implement this important principle, the Committee just published an explanatory note on the subject.

We had the opportunity to interview Thomas Leysen, chairman of the Corporate Governance Committee. He stressed that “sustainable value creation is most definitely not a buzzword, but the central task for corporations in the 21st Century”.

Thomas Leysen

Why is the Corporate Governance Committee publishing this explanatory note on sustainable value creation today?

There is currently a profusion of approaches to the concept of sustainability and its application to the corporate world. Many of them are of a more conceptual nature, others define  a number of very broad goals (such as the United Nations Sustainable Development Goals), others focus on corporate reporting relating to ESG (Environmental, Social and Governance) topics etc. 

We felt that in this context there was value in producing a brief statement of ‘first principles’. Our aim was not to be all-encompassing, but rather to provide the corporations with some basic ideas and starting points on how to concretely think about sustainability and sustainable value creation.

The importance of sustainable value creation was already spelled out in the 2020 Belgian Corporate Governance Code, but we hope that this explanatory note will help those companies who had some hesitation about what was actually meant by this.

“Sustainable value creation” sounds a bit like a “buzz word”. But what does it mean exactly?

Well, that’s exactly the point of the explanatory note: to go beyond the buzz and to list six elements which in our eyes are simple and practical corollaries of the search for sustainable value creation: prioritising the long term, appropriately formulating the corporate purpose, integrating sustainability in the corporate strategy and in its operations, transparent reporting and structured engagement by the board.

Why should companies pursue “sustainable value creation”? What can they gain from it?

Their long term success depends on it. A company ignoring the sustainability issues and the expectations of society can be successful in the short term, but in the long term they will run into major difficulties. I think there are many concrete examples which make this already abundantly clear. Companies which really think through what is required for sustainable value creation are much more likely to survive and to thrive.

What is expected of board members in this matter ?

As it is so crucial to the company’s long term success, it should naturally be a focus of the board as a whole. The board should regularly review how the corporate strategy integrates the threats and opportunities  which come from the need to evolve to a more sustainable world, it should ensure that the operations are conducted in the most sustainable way, and should ensure that there is transparent reporting around this. Structured engagement of the board on this is as important as the monitoring of financial performance and other strategic  topics.

What role do shareholders play when it comes to sustainable value creation ?

We see that shareholders are increasingly concerned and vocal about these issues. Just think about the spectacular growth of  sustainability focused investors (the so-called ESG or SRI funds). But also look at the success of a small activist investor in getting two directors elected to the board of Exxon. You also see that all large corporations are now expected to announce their net-zero greenhouse gas targets. Also for companies with large family shareholdings, you see younger generations in these families becoming increasingly focused on these issues.

So shareholders play a very important role in pushing the companies to take sustainable value creation seriously - also by accepting that this will not always maximise the returns in the very short term.

But needless to say, also other stakeholders are also making their voices heard. Customers are expecting more clarity on supply chains and ESG performance. Civil society organisations are also becoming vocal and even using the courts to push for actions (just think about the recent Shell case in The Netherlands). Regulators and legislators are increasingly codifying the required non-financial disclosures. 

So sustainable value creation is most definitely not a buzzword, but the central task for corporations in the 21st Century.