This is the third (and final) article in a series looking at Environment, Social and Governance (ESG) policies – an area that I suspect all firms are increasingly aware of, and perhaps looking to implement in order to meet their responsibilities. Unlike Environment and Social, Governance is not new to many firms, especially for those that operate in the highly-regulated financial services world.
Since inception Governance has been a significant focus at Fleet Mortgages, and we believe that by outlining how we approach Governance under the ESG umbrella, what we are covering, developing and changing, can be helpful to advisory firms.
Against this backdrop the key question and governing thought for us is – how do we conduct ourselves?
This type of question might seem rather open-ended but in order to meet those Governance responsibilities, it is possible to tailor your thinking, approach and output. And we expect different organisations to have different standards in this regard.
The base we have started from with Governance is to acknowledge we have a duty of care towards all stakeholders in our business, and in how we run it and conduct ourselves in order to leave a lasting legacy. Our ambition, in that regard, is to have a set of fit-for-purpose corporate governance structures in place, transparent in nature, that help us run a business we can be proud to work for.
That is the theory, but what are we doing in practice? Well, for us, amongst other things, it means working towards the delivery of five progressive steps to help us run our business in a prudent way.
First up, is the structure of our Board, where we have an ambition to have a diverse and healthy mix of non-executive and executive directors on it. The initial ambition is to have more than 30% as Non-Executive Directors and once achieved we will move on from here.
Secondly, is with regards to our Auditor’s Report, and here our ambition is to have no tolerance for, and receive no, qualified opinions from our financial auditors in any given year.
Next is ongoing compliance with business regulation. Our ambition is to continuously comply with the latest law and business regulation, including (but not limited to) Employment Law, Health & Safety, Equal Pay Act, Race Relations Act, Employment Protection Act, Consumer Protection Act, GDPR, and others.
This may seem like a non-negotiable intend for any business. However, not all organisations have the same culture and at Fleet we have an ambition to have zero non-compliance incidents in any given year. We record and measure ourselves against this ambition. When we fail, we learn from the experience, adjust what is within our control and start measuring again.
Quality Assurance is the fourth ambition under the Governance umbrella. This is of upmost importance to us as an organisation. This directly relates to our work as a lender and the quality of our loan book. We will carry out at least four quarterly file reviews and aim to have no more than 1% of our loans with poor grades from such reviews. As we cannot mark our own homework, we rely on third parties to review our work and give feedback.
Advisory firms can of course do something similar in terms of their case work, setting the very highest standards in terms of their individual quality, and setting a target for the number of cases which should not fall below this level.
Finally, all of the above takes place within our risk management framework. This framework makes provision for effective and disciplined structure of meetings across the organisation. This includes quarterly reviews of our Risk Register, monthly Board and Executive Committee, Credit Committee and Team meetings.
These meetings should always take place, with good attendance and with documented minutes, and any advisory firm can have the same process in place across their business, particularly in relation to case work standards, but also ensuring that all aspects of the business are discussed to ensure the strategy is being followed and delivered upon.
Overall, firms might already be taking all or a number of similar actions but are they doing so within the structure of an ESG policy framework, and are there ongoing ambitions, actions and measurable targets being documented? If not, now is the time to ensure they are.
In summary and to conclude this short series of articles on ESG it is worth acknowledging that the first step is often the hardest. It takes courage and leadership to make ESG real during a time when some enterprises are finding it difficult just to stay afloat. Life gets in the way and good intentions die. However, when one makes a deliberate choice to embrace change, magic can happen.
Jannie Vermeulen is co-founder & chief risk officer at Fleet Mortgages