Answer ... The role of the board and other corporate bodies/officers in the context of disclosure obligations relating to ESG (whether in a local or international facing company) is generally to:
- assist in shaping and deciding on the strategic direction of the company as regards ESG and the relevant ESG disclosure obligations (if they choose to do so), which may also include adequate consideration and disclosure of climate-related business/investment risks and stakeholder requirements;
- suitably monitor progress towards the achievement of objectives and compliance with the chosen ESG disclosure obligations, and can overlap with appropriate ongoing commercial monitoring of business risks and requirements (both internally and externally regarding ESG);
- facilitate the availability of internal/external resources and expertise required to support the company’s strategy and objectives, including obtaining sufficient data and information to enable proper reporting and disclosures that may be required;
- give an account of the company’s activities to the parties to which an account is properly due and suitable communication to stakeholders;
- arrange the preparation of the accounts/financial records of the company; and
- ensure the adequacy of any offering documents issued by the company.
The strategic direction and objectives of the company as regards ESG and the relevant ESG disclosure obligations should also continue to be periodically reviewed and updated if required to reflect changes that impact the company’s position, including:
- emerging ESG risks;
- new regulatory requirements;
- improved data;
- new stakeholder needs; and
- technological advancements.
Depending on the context, the relevant disclosure obligations may be mandatory (eg, for a listed company that must make certain ESG-related disclosures) and therefore fall squarely within the general duties of the directors to act in the best interests of the company (in addition to any commercial imperative for companies generally that also aligns with that general duty).
In Jersey, international structures can also include trusts (including unit trusts) and limited partnerships, among others. In those contexts, trustees of trusts and general partners of limited partnerships also have statutory and customary law duties (including fiduciary duties) to act in the best interests of beneficiaries or limited partners (as appropriate), which means that they can broadly have similar roles and responsibilities to those set out above in the context of ESG disclosure obligations.
Often, discharging these functions for ESG disclosure obligations can involve the appointment of specialists as advisers or the appointment of a non-executive director to the board with relevant ESG experience. Audit committees in larger public and listed companies are also likely to have a developing and larger role in the consideration of reporting on internal controls, risk management and disclosures being made regarding items such as climate change impact.
In relation to Jersey’s larger trading companies, as well as certain listed financial services businesses, we are increasingly seeing the emergence of ESG-specific functions at board level within the business, such as chief sustainability officer positions and other similar roles. With at least 78 companies listed on worldwide stock exchanges in centres such as London and New York (with a combined market capitalisation of approximately £172 billion at September 2021), this is likely to become an increasingly common feature of the governance structure of Jersey companies.
With regard to companies such as investment vehicles and special purpose vehicles that are administered by regulated service providers in Jersey, the sustainability functions of the entity (eg, data analysis, risk management, reporting) may be delegated to that regulated provider. The finance industry in Jersey is expanding the range of services it can offer in this regard, with many trust and company service providers and fund administrators now offering services such as:
- virtual chief sustainability officer functions;
- ESG investor reporting dashboards;
- ESG analysis for the underlying portfolio assets; and
- compliance services to meet the reporting obligations under regulatory frameworks such as SFDR.
When overseeing reporting on ESG, boards of directors should be mindful of, and attempt to mitigate, any potential liability (including any secondary market liability) on issuers, officers and directors. They should further ensure that there is reasonable scrutiny applied as regards:
- assumptions;
- risk factors;
- accuracy of disclosures and ESG claims; and
- appropriate cautionary language.
For more information on Jersey as a sustainable finance centre please contact David Postlethwaite from Jersey Finance.