David Simmonds FCIS FCS, Group General Counsel, Chief Administrative Officer & Company Secretary, CLP Holdings Ltd, looks at the role of governance and governance professionals in keeping business sustainable in the uncertain future.

Could we start with some background about yourself?

‘I grew up in Melbourne, Australia, the youngest of five children. Most of my family are in the medical profession so I did the opposite and became a lawyer. I studied at the University of Melbourne and started my career mostly doing mergers and acquisitions (M&A) and corporate work for one of the top-tier firms in Australia. That’s where I had my first exposure to company secretarial work – incorporation of companies, minutes of meetings, drafting resolutions, ensuring filings were up to date, appointment of directors and advising on governance matters.

After eight years as an M&A lawyer, I joined the telecommunications company Telstra, doing transactional work which took me to Hong Kong on a regular basis. I loved the city from the first time I came here.

After about eight years with Telstra, I was then invited to be General Counsel and Company Secretary at CLP’s subsidiary in Australia – Energy Australia.

I was with Energy Australia for about a year before I became the Director of Group Legal Affairs at CLP here in Hong Kong. I became the Group General Counsel & Chief Administrative Officer in 2013 and took up the role of Company Secretary in 2016.’

The legal and the company secretarial roles overlap to a certain extent, but how important is it to have specific Chartered Secretarial training for company secretarial work?

‘A lawyer’s role tends to be very broad and it’s often more service-oriented. Having someone who is a dedicated professional in the company secretarial area gives it the kind of attention and focus that it deserves. Otherwise there is a danger that the company secretarial functions that aren’t directly related to the board can get pushed to the back of the queue and that is obviously not desirable.’

Is the independence of the company secretary something that sets the role apart?

‘Both lawyers and company secretaries need to have independence, but I think the difference is the degree to which company secretaries are expected to uphold the role of gatekeeper, as opposed to that of business facilitator.’

There has been discussion in the Chartered Secretarial profession about the potential conflicts of interest in taking on both the general counsel and company secretary roles – have you had any difficulty combining these roles at CLP?

‘I wouldn’t call it a conflict of interest, but in both roles there is an inherent intellectual struggle that you have to go through to determine what is the right way to approach something. Where something is illegal, that is an easy judgement call for lawyers to make, but it is often not that black and white – there may be practices which are perfectly legal but which are nevertheless a high-risk way of achieving an objective. In an in-house environment, company secretaries are often asked to make judgement calls on the governance side – that is, I think, the part of the company secretary role which is most interesting. When it comes to corporate governance, the roles of the general counsel and the company secretary are very similar – it is a question of persuading the organisation that there is a better, lower-risk and higher-quality way of doing things.’

Do you think that some companies, and some company secretaries, underestimate the gatekeeper role of the company secretary – believing their remit is to follow instructions rather than uphold ethics?

‘A core function of the company secretarial position, and a critical part of it, is to uphold ethical standards. That has been one of the biggest influences on where I have chosen to work over the years. I want to work for organisations that conduct themselves in a manner consistent with the ethical standards that I am comfortable with, and CLP is one of them. The CLP culture is to do the right thing, not just abide by the letter of the law. There is an understanding that we are here for the long term and that businesses can only survive long term if they are taking their place appropriately in the community in which they do business.

There are other companies around that are on the opposite end of the spectrum, and I really do feel for people who are in legal and company secretary roles in those organisations because they would be under enormous pressure to turn a blind eye, or to even enable questionable practices.’

Working for CLP has put you at the heart of the current climate change debate – could we discuss this as an example of how to approach ethical challenges in practice?

‘Apart from being General Counsel and Company Secretary, I am the senior executive within the organisation responsible for our climate change strategy, so this is a topic close to my heart.

This is something that we’ve been concerned about for a very long time at CLP. We first published our Climate Vision 2050 back in 2007. That sets out a range of voluntary targets for us to reduce the carbon intensity of our business, and to increase the percentage of renewable energy and non–carbon emission energy in our generation portfolio.

The approach we’ve taken is not to second guess the science. We don’t have climate scientists within the organisation so we’ve been guided by the science in the international community, particularly the findings of the Intergovernmental Panel on Climate Change (IPCC). What the IPCC has been saying is pretty clear – man-made sources of greenhouse gases are causing the climate to warm and, if we don’t take action to curtail that, then it will lead to some very catastrophic consequences for the planet.

We know we are at about one degree warming at the moment, so we’ve already moved from forecast to observation. Things need to change and we feel as a company in a sector where we are apart of the problem – I think something like 40% of energy-related global greenhouse gas emissions comes from the power sector – that there is no solution on climate change that doesn’t involve a solution in the power sector.

We reviewed the targets in our Climate Vision 2050 last year and we strengthened them further to reduce carbon emission by 82% by 2050 and to increase our share of renewable energy and non–carbon emission energy through that period as well.

We have a very mature and good dialogue with the Hong Kong SAR Government about the way in which that transition should take place in Hong Kong. That is important, because this is not a single impact issue – the reliability and affordability of power supply matter to the community, both in Hong Kong and in the other markets we work in. So it is a constant balancing act trying to deliver clean, reliable and affordable power supply to the community. We need to transition to non-carbon emitting forms of generation in sync with the governments and the communities in which we are operating.’

Do you think that globally we can meet the two degrees Celcius warming limit set by the Paris climate agreement in 2015?

‘That’s a very significant challenge but I am fundamentally optimistic at heart. The period of inactivity that followed the Copenhagen summit resulted from people feeling that the problem is just too big to solve. The approach in Paris was fundamentally different – it was about recognising that we may not have all the answers today as to how we can actually get to a below two degrees scenario, but we have to set the trajectory that will prevent that from being impossible in the years ahead. I think a lot of benefit came from that approach. We are now seeing widespread implementation of renewable energy and investment in developing the technologies that will enable the grid to cope with a large volume of renewable energy.

There are a range of factors that still need to come together. We will still need further policy support to speed up the transition, but I am optimistic that the world will get its act together to get us at least a lot closer to the two degree scenario than we are at the moment. I think the generally accepted view is that we are heading for a warming scenario of about 3.2 degrees, so we will need to see considerably more action.’

How important a role will governance, and governance professionals, be playing in all of this?

‘The recent report by the Task Force on Climate-related Financial Disclosures (TCFD) makes governance one of the key elements in managing and reporting on climate change. Having a governance set-up specifically to deal with sustainability issues is really important. That starts with the board but goes all the way down the organisation. That’s something that’s worth taking time to get right.

At CLP, we have a dedicated sustainability team within the organisation that reports up to members of senior management who have oversight of the relevant issues – that includes me, the CEO, CFO and COO – and ultimately up to a sustainability committee of the board, which is a group of five directors.

The sustainability committee provides a safe forum to have open discussions and deliberations about the best way to tackle these longer-term issues, which are not only complicated but also have fundamental ramifications for the business from financial, reputational, environmental and social perspectives. Once these issues have been properly ventilated and considered and we have an agreed way forward, then it’s a much smoother path through the board than if we were to try to have those conversations in the full board environment. When you walk into the board meeting, you already have five very supportive directors.

So that is an example of how having the right governance structure can be critical to getting the best answers to sustainability issues. The structure gives you the dedicated focus on these issues, which is really important for something as fundamental as this.’

Do you think governance professionals, in particular company secretaries, will need to be much more involved in the big picture – in particular fundamental issues facing organisations such as climate change risk and sustainability – in their future work?

‘Yes, and I think that’s why the introduction of the Chartered Governance Professional designation by the Institute is such a good thing. I see two forces at work here for the company secretary that will increase our focus on governance. At one end of the spectrum, a lot of the administrative and procedural work that company secretaries do is at the greatest risk of being automated. The jobs that are at least risk of being replaced by machines are those where you are dealing with human interactions and judgements about how to get the best out of people. This is, in large part, what governance is all about – resolving the inherent conflicts between various stakeholders that a company has regard to.

Historically the governance sphere has fallen to the company secretary but, as there is now a greater focus by senior management within organisations on environmental, social and governance issues, so the governance part of that might not necessarily default to the company secretary anymore – other senior executives could quite willingly take the responsibility for this area. So company secretaries should take advantage of our incumbency position to really focus on building up our strengths in governance in order to ensure that we remain the people responsible for the governance agenda of organisations.’

Some people have said that a ‘tech fix’ will come along to solve the various crises threatening us at the moment – climate change included. Do you think we can lower our guard?

‘Any tech solution would have to come quickly. Bloomberg New Energy Finance recently released research predicting that, even if we eliminate all coal-fired power generation by 2035, we would still be six times over the level of global emission required to get to a below two degree scenario. There is a lot of work still to be done and other sectors need to play their part too, even though it may be even more difficult to achieve reductions. The transport sector is an obvious part of this, but I think it is dangerous to sit back and hope that a technology breakthrough will save the day. Real change is possible with existing technologies. We have joined an organisation called the Energy Transitions Commission led by Lord Adair Turner. He used to be the head of the Committee on Climate Change in the UK, and they are doing a lot of interesting work on how the world can get to a below two degree scenario with current technology.’

Many thanks for giving us this interview; one final question. We have seen the rise of a politics globally which is based on denying climate change risks and taking us away from multilateral, coordinated attempts to address the many crises we are currently facing. Do you think sanity will prevail?

‘You have reminded me of an old native American proverb where a man tells his grandchild that there are two wolves in everyone. One wolf is greedy, jealous, selfish, angry and vindictive, while the other wolf is peaceful, generous, kind and considerate. The grandfather says that these two wolves are in constant battle in every person. When his grandchild asks him which wolf will win in the end, he says, “it depends which one you feed”.

We are getting a lot of feeding of the wrong wolf at the moment. The American approach is depressing and has encouraged, and will continue to encourage, equivalence in other countries – Australia being an example of that. While that is no doubt putting a brake on the speed with which governments around the world are acting, I am encouraged by the fact that Europe is taking up a leadership role again. After a period where it was focusing on its own internal issues, Europe is working on a set of initiatives aimed at keeping global warming below the two degree scenario – part of which is fixing the emissions trading scheme so that there is an effective price on carbon.

What is happening now in the renewable energy sector is a direct result of policies adopted 15 years ago in Europe. To feed the right wolf, the Europeans subsidised the development of renewable energy technology, in particularly solar. The Chinese took that and cut the cost out of it dramatically with their own scale and manufacturing processes. The result is that now, in a lot of places in the world, solar power is the cheapest form of electricity you can produce. Progress is being made and with the right “nudges” by governments in the future, I believe we can get to the right place.’

David Simmonds FCIS FCS was interviewed by CSj Editor Kieran Colvert.

The ‘Recommendations of the Task Force on Climate-related Financial Disclosures’ mentioned in this interview are available on the TCFD website: www.fsb-tcfd.org.