Ethics and Governance

A mainstay of Ireland’s financial services landscape for over 60 years, our credit unions are entering an exciting phase with recent developments presenting new opportunities to adapt and change Credit unions are an important part of the financial services landscape. With offices a common feature of cities, towns and villages throughout Ireland, they play a key role in the day-to-day finances of many Irish people and communities. There are more than 3.6 million credit union members on the island of Ireland.  A history of credit unions Credit unions were first established in Ireland in the late 1950s and quickly became a repository for savings and a source of loans for many people. The total value of loans extended by credit unions in the Republic of Ireland is currently around €5 billion, with total savings coming to about €16 billion.  Average sector total reserves, as a percentage of total assets, is approximately 16 percent, which serves to underpin the confidence of their members, particularly in times of uncertainty and disruptive change. These institutions are not-for-profit financial co-operatives. They are owned and controlled by their members and therefore have a different business model to retail banks. Each credit union is independent, with its own board of directors, charged with overall responsibility for running the credit union.  Because they are part of the financial services sector, credit unions are governed by legislation in Ireland, principally the Credit Union Act 1997, as amended, and regulated by the Central Bank.  Significant amendments to the 1997 Act were introduced by the Credit Union and Co-operation with Overseas Regulators Act 2012, and this is the legislative regime under which credit unions currently operate. The credit union sector has been relatively stable in terms of any legislative or government policy changes. However, two recent developments, the Credit Union (Amendment) Bill 2022 and the Retail Banking Review (November 2022), present new opportunities for credit unions to adapt and change their business models and enhance their product and service offerings to members. The Credit Union (Amendment) Bill 2022 The first major legislative change for credit unions since the 2012 Act, the Credit Union (Amendment) Bill 2022 (the Bill) was published on 30 November 2022 following over two years of stakeholder engagement, with over 100 proposals considered. Highly technical and not an easy read, the Bill is currently before the Dáil, where proposals for amendments will be considered.  There is no fixed timeline for enactment and, post-enactment, commencement of sections may occur in phases, with the Central Bank of Ireland having to amend regulations to accommodate the new provisions.  The main provisions of the Bill involve: the establishment of ‘corporate credit unions’; amending the requirements and qualifications for membership of credit unions; altering the scope of permitted investments by credit unions; changes to the governance of credit unions; maximum interest rates on loans by credit unions; provision of services by credit unions to members of other credit unions; and participation by credit unions in loans to members of other credit unions. Collaboration between credit unions The introduction of ‘corporate credit unions’ should support greater collaboration between credit unions, facilitating a pooling of resources and greater access to funding.  A new form of regulated entity, their membership would be restricted to other credit unions, with lending allowed only to those members. Further collaboration is envisaged with a provision in the Bill allowing all credit unions to refer members to other credit unions to avail of a service that the original credit union does not provide.  While such referral is not mandatory, it is a new option for making additional services available to members—for example, a current account facility where the original credit union may be reluctant to provide this service to all members based on cost or other reasons.  Another provision enabling collaboration allows a credit union to participate in a loan to a member of another credit union. This will facilitate risk sharing associated with the loan and will make it easier for an individual credit union to offer larger loans to its members.  Regarding lending to businesses, and other organisations or associations, there is a further key provision in the Bill for “bodies” (incorporated or unincorporated) to be allowed join a credit union with the same rights and obligations as a “natural person” (member).  This is, however, subject to conditions that a majority of the members of the body would be eligible to join the credit union and the body meets the common bond requirement. Ultimately, this will make it easier for credit unions to lend to such bodies and is principally focused on SMEs. While none of these changes are mandatory, they do provide new options and opportunities for credit unions. Governance changes Regarding changes in governance, two provisions stand out: the option to appoint the manager (chief executive officer) of the credit union to the board; and  reduction of the minimum number of board meetings per year to six, down from the current 10.   The extent to which these changes will be adopted remains to be seen, as many credit union boards may be content with the existing practice.   Where a credit union decides to include its manager as a board member, the Bill proposes that this will be done by their direct appointment to the board and not by election at a general meeting of members.  The term can be for any length but cannot extend beyond the individual’s term as manager.  One restriction on the manager as a board member is that they cannot sit on the nomination committee of the credit union, the membership of which is restricted to board members who have been co-opted or elected at general meetings.  Similarly, regarding the frequency of board meetings, the board may be reluctant to change the current practice of having at least one meeting per month, concluding that it cannot adequately carry out its responsibilities with only six board meetings.  Because of the voluntary ethos of credit unions, the historically close involvement of board members with the credit union, and the relatively onerous responsibilities of boards, it may take some time before six board meetings is considered the norm. Other governance changes proposed by the 2022 Bill include reducing the number of board oversight committee meetings, removing the requirement for the board oversight committee to sign the audited annual accounts, and extending from annually to every three years the review of specific policies by the board. The Credit Union (Amendment) Bill 2022 includes substantive policy change in the areas of collaboration, members’ services, and governance. It seeks to give more power to credit unions to determine strategy and, when enacted, will require consequential changes to Central Bank regulations.  To fully exploit the options and opportunities enabled by its provisions will require significant work by the sector. The Retail Banking Review 2022 In November 2022, following its approval by Government, Minister for Finance, Paschal Donohoe, and Minister of State for Financial Services, Credit Unions and Insurance, Sean Fleming, published the report of the Retail Banking Review (the Review).  Driven by the departure of two major banks, Ulster Bank and KBC, this is a broad-ranging review of the retail banking sector in Ireland, including the credit union sector.  In relation to credit unions, the Review states: “Credit unions have a strong and trusted brand, they are present in communities throughout the country, and have been developing their product offering. The credit unions are already a significant player in consumer credit, and they are making inroads in the current account, mortgages and SME segments of the market. These developments, coupled with their collectively strong levels of capital and deposit bases, leads the Review Team to believe that credit unions could play a greater role in the provision of retail banking products and services in the coming years.” Referencing the Credit Union (Amendment) Bill 2022, the Review recommends that the credit union sector develop a strategic plan to deliver business model changes that would enable it to sustainably provide a universal product offering to all credit union members. Provided directly or on a referral basis, this would continue to be community-based. The Review suggests that such a strategic plan should show how credit unions can: viably scale their business model in key product areas such as mortgages and SME lending; invest in expertise, systems, controls, and processes to deliver standard products and services across all credit unions, while managing any risks arising and continuing to protect members’ savings; provide the option of in-branch services for members of all credit unions. Both the Bill and the Review point to new opportunities for credit unions and demonstrate confidence in their future as part of the Irish financial services sector. For these opportunities to be successfully managed, however, credit unions must continue to maintain high levels of governance so that legislators, the Central Bank, their members, and the wider community can have confidence in the sector.  Credit unions have done much for many people in Ireland for more than 60 years. These developments in legislation and government policy point to their continued and increasing relevance in the years ahead. Gene Boyd, FCA, is a risk management consultant and author of The Governance of Credit Unions in Ireland

The roadmap for the EU Commission’s milestone Corporate Sustainability Reporting Directive is taking shape and now is the time to start preparing for a brave new era in non-financial reporting, writes Conor Holland With the Corporate Sustainability Reporting Directive (CSRD) now approved by the European Council, entities in the EU must begin to invest significant time and resources in preparing for the advent of a new era in non-financial reporting, which places the public disclosure of environmental, social affairs and governance matters (ESG) matters on a par with financial information. Under the CSRD, entities will have to disclose much more sustainability-related information about their business models, strategy and supply chains than they have to date. They will also need to report ESG information in a standardised format that can be assured by an independent third party. For those charged with governance, the CSRD will bring further augmented requirements. Audit committees will need to oversee new reporting processes and monitor the effectiveness of systems and controls setup. They will also have enhanced responsibilities. Along with monitoring an entity’s ESG reporting process, and evaluating the integrity of the sustainability information reported by that entity, audit committees will need to: Monitor the effectiveness of the entity’s internal quality control and risk management systems and internal audit functions; Monitor the assurance of annual and consolidated sustainability reporting; Inform the entity’s administrative or supervisory body of the outcome of the assurance of sustainability reporting; and Review and monitor the independence of the assurance provider. The CSRD stipulates the requirement for limited assurance over the reported information. However, it also includes the option for assurance requirements to evolve to reasonable assurance at a later stage. The EU estimates that 49,000 companies across the EU will fall under the requirements of the new CSRD Directive, compared to the 11,600 companies that currently have reporting obligations. The EU has confirmed that the implementation of the CSRD will take place in three stages: 1 January 2024 for companies already subject to the non-financial reporting directive (reporting in 2025 for the financial year 2024); 1 January 2025 for large companies that are not presently subject to the non-financial reporting directive (reporting in 2026 for the financial year 2025); 1 January 2026 for listed SMEs, small and non-complex credit institutions, and captive insurance undertakings (reporting in 2027 for the financial year 2026). A large undertaking is defined as an entity that exceeds at least two of the following criteria: A net turnover of €40 million A balance sheet total of €20 million 250 employees on average over the financial year The final text of the CSRD has also set timelines for when the Commission should adopt further delegated acts on reporting standards, with 30 June 2023 set as the date by which the Commission should adopt delegated acts specifying the information that undertakings will be required to report. European Financial Reporting Advisory Group In tandem, the European Financial Reporting Advisory Group (EFRAG) is working on a first set of draft sustainability reporting standards (ESRS). These draft standards will be ready for consideration by the Commission once the Parliament and Council have agreed a legislative text. The current draft standards provide an outline as to the depth and breadth of what entities will be required to report. Significantly, the ESRS should be considered as analogous to accountancy standards—with detailed disclosure requirements (qualitative and quantitative), a conceptual framework and associated application guidance. Readers should take note—the ESRS are much more than a handful of metrics supplementary to the financial statements. They represent a step change in what corporate reporting entails, moving non-financial information toward an equilibrium with financial information. Moreover, the reporting boundaries would be based on financial statements but expanded significantly for the upstream and downstream value chain, meaning an entity would need to capture material sustainability matters that are connected to the entity by its direct or indirect business relationships, regardless of its level of control over them. While the standards and associated requirements are now largely finalised, in early November 2022, EFRAG published a revised iteration to the draft ESRS, introducing certain changes to the original draft standards. While the broad requirements and content remain largely the same, some notable changes include: Structure of the reporting areas has been aligned with TCFD (Task Force on Climate-Related Financial Disclosures) and ISSB (International Sustainability Standards Board) standards – specifically, the ESRS will be tailored around “governance”, “strategy”, “management of impacts, risks and opportunities”, and “metrics and targets”. Definition of financial materiality is now more closely aligned to ISSB standards. Impact materiality is more commensurate with the GRI (Global Reporting Initiative) definition of impact materiality. Time horizons are now just a recommendation; entities may deviate and would disclose their entity-specific time horizons used. Incorporation of one governance standard into the cross-cutting standard requirements on the reporting area of governance. Slight reduction in the number of data points required within the disclosure requirements. ESRS and international standards By adopting double materiality principles, the proposed ESRS consider a wider range of stakeholders than IFRS® Sustainability Disclosure Standards or the US Securities and Exchange Commission (SEC) published proposal. Instead, they aim to meet public policy objectives as well as meeting the needs of capital markets. It is the ISSB’s aim to create a global baseline for sustainability reporting standards that allows local standard setters to add additional requirements (building blocks), rather than face a coexistence of multiple separate frameworks. The CSRD requires EFRAG to take account of global standard-setting initiatives to the greatest extent possible. In this regard, EFRAG has published a comparison with the ISSB’s proposals and committed to joining an ISSB working group to drive global alignment. However, in the short term, entities and investors may potentially have to deal with three sets of sustainability reporting standards in setting up their reporting processes, controls, and governance. Key differences The proposed ESRS list detailed disclosure requirements for all ESG topics. The proposed IFRS Sustainability Disclosure Standards would also require disclosure in relation to all relevant ESG topics, but the ISSB has to date only prepared a detailed exposure draft on climate, asking preparers to consider general requirements and other sources of information to report on other sustainability topics. The SEC focused on climate in its recent proposal. The proposed ESRS are more prescriptive, and the number of disclosure requirements significantly exceeds those in the proposed IFRS Sustainability Disclosure Standards. Whereas the proposed IFRS Sustainability Disclosure Standards are intended to focus on the information needs of capital markets, ESRS also aim to address the policy objectives of the EU by addressing wider stakeholder needs. Given the significance of the directive—and the remaining time to get ready for it—entities should now start preparing for its implementation. It is important that entities develop plans to understand the full extent of the CSRD requirements, and the implications for their reporting infrastructure. As such, they should take some immediate steps to prepare, and consider: Performing a gap analysis—i.e. what the entity reports today, contrasted with what will be required under the CSRD. This is a useful exercise to inform entities on where resources should be directed, including how management identify sustainability-related information, and what KPIs they will be required to report on. Undertaking a ‘double materiality’ analysis to identify what topics would be considered material from an impact and financial perspective—as required under the CSRD. Get ‘assurance ready’—entities will need to be comfortable that processes and controls exist to support ESG information, and that the information can ultimately be assured. The Corporate Sustainability Reporting Directive represents a fundamental change in the nature of corporate reporting—the time to act is now and the first deadline is closing in.

Companies preparing for the commencement of the Protected Disclosures (Amendment) Act 2022 in the New Year will need to overhaul whistleblowing policies and processes, but the effort will bring clear benefits, writes Gráinne Madden Encouraging people in an organisation to speak up about their concerns should be a no-brainer. Why would an organisation not want to know about a potential risk? Why would an organisation want an employee to feel the need to go to an external body, such as a regulator or the media, to highlight internal problems? International research repeatedly reinforces that there are two main reasons why people fail to speak up about their suspicions of wrongdoing. First, there is the fear of retaliation. Current Irish and UK law is seeking to address this by offering protection. The second reason people fail to speak up about their suspicions of wrongdoing in an organisation is fear of futility. This is the fear that nothing will be done, even if they do speak up—and this is why having clear policies and processes in place is so important.  The absence of a whistleblowing policy and process in an organisation will certainly send the message that the organisation does not really want to hear about any problematic issues that may exist or arise.  As it stands, in Ireland and the UK, workers are entitled to legal protection against dismissal, or other reprisal from their employer or colleagues, when disclosing concerns about certain issues. Until now, however—except in certain sector-specific areas—most organisations have not been required to put a whistleblowing policy or procedures in place, or to follow up on such disclosures.  The EU Whistleblowing Directive will, however, bring major changes to which organisations operating in EU jurisdictions must now respond. In Ireland, the Protected Disclosures (Amendment) Act 2022 will commence on 1 January 2023, giving effect to the EU Directive. New requirements for organisations There are several key additional requirements that will apply to organisations under the new Act, which are considered below. Employee thresholds For workplaces with more than 50 employees, there will be a requirement to have formal channels and procedures for receiving and, crucially, following up on disclosures. Workplaces with between 50 and 249 employees have until December 2023 to comply, and 250-plus employee workplaces must comply at commencement.  However, all organisations operating in certain sectors will be required to comply at commencement, even those employing fewer than 50 people. This includes:  public bodies; companies subject to EU laws in the areas of financial services, prevention of money-laundering and terrorist financing; transport safety; and protection of the environment (offshore oil and gas installations and operations only). The 2022 Act states that the Minister for Public Expenditure and Reform may, by order, reduce the threshold of 50 employees for specified classes of employers, subject to a risk assessment and public consultation.  Change of definitions and burden of proof Under the new Act, the scope of protected persons will be extended to include non-executive members, shareholders, volunteers, and ‘pre-contractual’ employees, such as candidates applying for a job during the recruitment process before the work-based relationship even begins. Further, retaliation will be more broadly defined. In respect of alleged detriment (be it an act or omission) caused to a person because of the making of a protected disclosure, the employer will have to prove that the detriment complained of was not in retaliation for, or because of, the person having made a protected disclosure.  Administration and staff Confidentiality regarding whistleblowing must be respected by all reporting systems and access to data by non-authorised staff prevented. For staff who are authorised, appropriate training must be given in respect of the handling of reports. Finally, records must be kept of all reports, as well as ensuring follow-up and feedback regarding these reports within certain timeframes.  Blending culture with policy The required process management will mean that many organisations will need to implement issue management systems. Simply having a policy and process in place isn’t, however, going to be an encouragement for nervous employees. Creating a culture in which people feel safe in speaking up—and feel that their concerns are welcomed—is far more important.  So, in addition to having a sound policy and process in place, what other steps should employers consider? Here are seven recommendations: Train managers and team leads to recognise when an issue could be a protected disclosure and, most importantly, to receive reports of potential issues in a calm and welcoming way. Word can spread very quickly about managers not being open to bad news. Think about how whistleblowing is discussed in the organisation and consider whether it is healthy or whether the narrative needs to be changed. Any pejorative language in connection with whistleblowing or speaking up needs to be identified and stamped out. The focus must be on recognising that people who bring risks to our attention are doing the organisation a great favour. It is worth highlighting that research demonstrates that the people who blow the whistle tend to be the most loyal employees who care greatly about the organisation. Ensure that the confidentiality regime is well- communicated and respected so that employees can be confident their identity will not become known if they disclose an issue. Do not become complacent if the whistleblowing policy is not used—rather than indicating a spotless organisation, it could be signalling a poor work culture where people either fear speaking up or just don’t care enough to bother. Remove any ‘good faith’ requirement from policies. The focus should be on the issue reported, not the motivation of the person reporting. Furthermore, there is no ‘good faith’ obligation under Irish or UK law or the directive. Make sure that penalisation is not tolerated. State this clearly in the whistleblowing and speaking-up policy, making sure there are clearly defined processes for reporting claims of penalisation and for following up on claims of penalisation. Provide feedback to a discloser on any action taken in response to their disclosure. The ability to do this will depend on the nature of the issue and the rights to confidentiality of other parties. At the very least, a discloser should be reassured that their concerns have been dealt with appropriately. It is likely that most organisations will need to overhaul their whistleblowing policies and processes in response to the Protected Disclosures (Amendment) Act 2022. The requirements may seem daunting, but help and advice on good practice is available. The benefits are clear, not just in terms of risk management and protection of brand and reputation, but also for the common good.

Chartered Accountant Eamonn Hughes is playing a leading role in Bank of Ireland’s Responsible and Sustainable Business Strategy. Hughes tells Accountancy Ireland about the four-year plan and his goals as Chief Sustainability and Investor Relations Officer  Before joining Bank of Ireland Group in February as Chief Sustainability and Investor Relations Officer, Chartered Accountant Eamonn Hughes had a longstanding career as a sell-side market analyst with more than 25 years’ experience in capital markets and domestic banking.  Having worked most recently with Goodbody, the stockbroking firm, as Irish Banks and Insurance Sector Analyst and, before that, Head of Research, Hughes also had a clear view of the swift rise in environmental, social and governance (ESG) to the top of the financial agenda worldwide. “I could see that ESG was becoming hugely important in capital markets and the financial sector. The climate crisis, in particular, is a critical threat, but also a significant opportunity,” said Hughes. “For our planet, there is no Plan B, but the discussion about sustainability is not just about climate change. It is also about creating a more sustainable business model. Our vision at Bank of Ireland is to be the national champion in Ireland, to use our balance sheet and resources to drive positive change for a better, fairer society and improve the environment. “This gives me a very strong framework to think about my role, because, if we can deliver on our ESG strategy, we can ultimately deliver a more sustainable business model for all stakeholders and positive returns for investors. “The ESG agenda also involves regulators, so disclosure and risk management are very important—and there are reporting frameworks in place, but they are evolving very quickly. This is one of the challenges we face and is also why transparency and the availability of clear data is so important.  “With my background in capital markets, I can clearly see the mobilisation in capital, and I think the banking sector has a very obvious supporting role to play in society’s sustainability transition.” Investing in tomorrow Bank of Ireland published its Responsible and Sustainable Business Strategy in March 2021, a year before Hughes joined the group.  Bank of Ireland’s four-year Investing in Tomorrow strategy set out its own goals to support the green transition, alongside two additional pillars: enabling colleagues to thrive; and enhancing customers’ financial wellbeing. The Investing in Tomorrow green transition pillar included the setting of science-based targets aligning the bank’s lending portfolios with the Paris Agreement. The international treaty on climate change, adopted in 2015 at COP 21, set out a goal to limit global warming to 1.5 degrees Celsius, compared to pre-industrial levels. “Data is key across all three pillars, because reporting is essentially an output of what we are doing in support of climate change, colleagues, customers and the organisation as a whole,” said Hughes. “We need to focus on how we interact with our stakeholders internally and externally and, in my role, investors are obviously a key priority. As investors now have to produce more disclosures themselves, they will need to engage more with us in terms of what we are doing on our own ESG journey.” Clear reporting strategy How Bank of Ireland communicates with, and reports to, stakeholders on the progress of its ESG strategy is a priority for Hughes in his role as Chief Sustainability and Investor Relations Officer. “Ultimately, we need to explain how we are meeting the targets set out in our strategy, and it is incumbent upon us to develop the capacity and skill sets we need to support reporting and strategy delivery,” he said. “My role is to support in delivering across all three pillars, which involves a lot of data-gathering internally, particularly from a regulatory and reporting perspective.” Detailed progress reports on ESG will now be a core part of Bank of Ireland’s annual reporting cycle. “We need to be able to demonstrate clearly that we are creating a sustainable business strategy, enabling colleagues to thrive in the organisation and enhancing financial well-being among customers, in addition to supporting the sustainable transition,” said Hughes. “Transparency is hugely important. There are a lot of differentials in this space, so we need to standardise our reporting; to be able to explain clearly and cohesively what we are doing and why.” Commercialisation is becoming increasingly important as Bank of Ireland continues to implement Investing in Tomorrow, Hughes said. “Like many banks, we are in the commercialisation phase of our ESG strategy with the creation of sustainable finance solutions for, and increasing engagement with, customers. We are supporting and incentivising customers through competitive rates to buy or build an energy efficient home or to retrofit their home or business to make it more energy efficient.” Sustainable finance fund Bank of Ireland recently announced a €3 billion increase in its Sustainable Finance Fund, which will bring it to €5 billion by 2024. The fund covers green propositions, including mortgages, home improvement loans and business  loans.  Bank of Ireland’s inaugural standalone Responsible and Sustainable Business Report, published in June, tracked the progress of its ESG strategy in 2021. More than €1.8 billion in mortgages, home improvement loans and business loans had been drawn down from the Sustainable Finance Fund by the end of the year, the report stated. Thirty-five percent of all mortgages provided by the bank in 2021 were green, rising to 48 percent in the first half of 2022.  Bank of Ireland was also the largest provider of wholesale finance for electric vehicles in 2021, providing finance to 13 of the 15 car manufacturer franchises. The publication of the Responsible and Sustainable Business Report marked a significant “step-change in the tracking and transparency” of the bank’s ESG reporting, Hughes noted.  “Our stakeholders—including customers, shareholders, and regulators—are demanding far greater transparency as to how we are meeting our ESG commitments,” he said. “This report provides insight into our strategic approach, appraisal of our progress to achieve our purpose, and information on the key focus areas we plan to progress in the years ahead. Being clear on ESG, and showing how you are delivering what you sign up to, is now a commercial imperative for all lenders, including Bank of Ireland.” Science-based targets Bank of Ireland has also committed to setting science-based targets across portfolios and operations to align lending practice with the low carbon ambitions set out in the Paris Agreement. “We completed two successful green bond issuances in 2021, raising €1.25 billion with the capital used to finance green buildings, renewable energy projects and clean transportation,” said Hughes. “Thirty-five per cent of the mortgages we provided in 2021 were green and we have also launched a green mortgage product in the UK.” Bank of Ireland is providing finance for the development of at least 750 megawatts of renewable wind capacity across the island of Ireland. The bank is also in the process of decarbonising its own operations—reducing absolute emissions by 88 percent between 2011 and 2021. Social and governance Although supporting the green agenda is a major part of Investing in Tomorrow, the strategy also sets goals for investing in colleagues and enhancing customers’ financial wellbeing. “We recognise the supporting role we can play in Ireland’s response to the climate crisis, but the ‘S’ and ‘G’ are equally important when we consider ESG,” Hughes said. “We have a strategy to improve the financial wellbeing of our customers and to foster a financially inclusive society.” Bank of Ireland was, Hughes said, supporting customers to become more financially confident, while also working to simplify processes, so that the “financially marginalised have easier access to banking services.” Financial health and inclusion  Bank of Ireland is one of 28 banks around the world that have signed the Commitment to Financial Health and Inclusion published in December 2021 under the United Nations Principles for Responsible Banking (PRB). A first-of-its-kind initiative aimed at promoting universal financial inclusion and health in the banking sector, its launch closely followed the publication of the UN’s PRB Collective Progress Report. The report identified financial inclusion as the third most pressing sustainability challenge facing signatory banks, behind climate mitigation and adaptation. “This UN initiative is particularly important in an environment in which we have a cost-of-living crisis and customers are facing major challenges in the medium- to long-term. The question for us is, ‘how can we deliver this particular skill set and support our customers at a time when they really need it?’” said Hughes. Bank of Ireland is also helping customers to “live more sustainably” with the recent announcement of the roll out of bio-sourced debit and credit cards. Launched in October, the initiative will over time replace all plastic debit and credit cards issued by the bank, to help support the reduction of single-use plastic. “If we are to live in a more sustainable way, we need to do things differently, including through our everyday banking. The introduction of bio-sourced cards is a very practical way we can help our customers to reduce their environmental footprint,” Hughes said. “As a bank, we are working very closely with our customers on the sustainability transition. As they deliver, we deliver. It is a symbiotic relationship and an exciting place to be.”  

Karen Flannery and Níall Fitzgerald consider the critical points in the revised Chartered Accountants Ireland Code of Ethics, which came into effect on 1 March 2020. The revised Chartered Accountants Ireland Code of Ethics took effect on 1 March 2020. The revised Code was necessary to increase alignment with the International Ethics Standards Board for Accountants (IESBA) Code of Ethics, which underwent a significant restructure in recent years. While there are no changes to the fundamental principles, Chartered Accountants familiar with the previous Code of Ethics (effective September 2016 to 29 February 2020) will find the look and feel of the revised Code significantly different. While additional sections and emphasis were included, others were removed. This results in greater clarity and ease of navigation. Figure 1 provides an overview of the revised Chartered Accountants Ireland Code of Ethics. Added emphasis on fundamental principles The five fundamental principles of the Code of Ethics remain unchanged. These include integrity; objectivity; professional competence and due care; confidentiality, and; professional behaviour. The conceptual framework that describes the approach used to identify, evaluate and address threats to compliance with the fundamental principles also remains the same. However, there is now a heightened emphasis on the fundamental principles and the use of the overarching conceptual framework underlying each section of the Code. Before, much of the narrative was contained in a single section of the Code. Responding to non-compliance with laws and regulations New sections were added concerning non-compliance with laws and regulations (NOCLAR) for professional accountants in practice (Section 360) and professional accountants in business (Section 260). These bring the NOCLAR provisions of the IESBA Code of Ethics into the Institute’s Code. A vital feature of the NOCLAR provisions is the specific in-Code permission to breach the principle of confidentiality in the public interest. This permission has been explicit in the Institute’s Code for several years and so, the NOCLAR provisions can be seen as a change of detail rather than of substance. The new sections outline the required actions when NOCLAR is discovered and provide additional guidance in this area. Key points to note concerning the NOCLAR provisions are: The first response to identified NOCLAR is to raise the matter, and seek to address it, at the appropriate level within the relevant organisation (internally); Where NOCLAR is not dealt with appropriately internally, the professional accountant considers whether to report to an external authority in the public interest. The decision to report externally is (as it always has been) a complex one; and Where a report is made in the public interest and good faith, there is no breach of the confidentiality requirements of the Code of Ethics. However, there may be legal implications for the professional accountant to consider. Revised layout The most obvious change is the revised layout of the Code of Ethics, which now mirrors the structure of the IESBA Code of Ethics with additional material for members of Chartered Accountants Ireland. A new paragraph numbering format was introduced and as a result, sections were restructured (e.g. what was “Part C” (Professional Accountants in Business) is now “Part 2” in the revised Code).The revised layout facilitates more natural referencing and distinguishes between the Code’s requirements (in bold text and denoted by the letter ‘R’) and application material or guidance (indicated by the letter ‘A’). Complexity has been reduced by simplifying sentences and language in parts. Also a new ‘Guide to the Code’, explaining how it works, has been included. Other content changes Table 1 highlights other notable developments in the revised Code of Ethics and suggests where you might focus your attention depending on whether you are a member in practice or business. Retained Institute ‘add-on’ material Where existing Institute ‘add-on’ content created important additional requirements beyond the IESBA Code, these ‘add-on’ requirements are retained in the revised Code of Ethics. Such requirements include: Specific requirements regarding communicating with the predecessor accountant (Section 320); Particular obligations regarding transparency around the basis for fees and dealing with fee disputes (Section 330); and Agencies and referrals (Section 331). No new ‘add-on’ material was created. Additional support for members The Institute’s online Ethics Resource Centre is updated regularly with a range of supports and guidance for members. Additional information included in the old Code of Ethics, but removed in the revised Code and still considered useful, has been reproduced in a series of new Ethics Releases. The Ethics Releases are not a substitute for the requirements of the Code, but they do provide additional support for members in particular scenarios, including: Code of Ethics and changes in professional appointments; Code of Ethics and confidentiality; Code of Ethics and marketing of professional services; and Code of Ethics and corporate finance advice. Future updates The last substantial change to the Institute’s Code of Ethics was in 2016. While the Code does not change regularly, there is a significant body of work happening behind the scenes to ensure it remains appropriate, precise and effective in the context of the issues affecting the accounting profession. Members can, therefore, expect amendments from IESBA in the coming years; for example, considerations addressing the impact of technology-related ethics issues on the accounting profession. For members who are insolvency practitioners, a new Insolvency Code of Ethics is imminent. The current Code of Ethics for Insolvency Practitioners, appended as Part D of the Institute’s old Code of Ethics for members, remains in effect until then.  Actions speak louder than words It was evident from the Ethics Research Report, published by the Institute in January 2019, that members hold their professional and business ethics in high regard. While the Code of Ethics does not change regularly, it is a hallmark that establishes a minimum standard which is signed up to and shared by all members of the profession. It is useful to be familiar with its requirements and to remember that it is individual member actions that express commitment to the Code of Ethics in addition to a member’s personal ethics. The revised Code is available via the Institute’s Ethics Resource Centre.   Níall Fitzgerald FCA is Head of Ethics and Governance at Chartered Accountants Ireland.  Karen Flannery FCA is Head of Professional Standards Projects at Chartered Accountants Ireland.

The role of the charity director is an onerous one, but what about performance? David Brady considers the characteristics of an effective charity director, and future challenges and opportunities. The implementation in 2021 of the Charities Governance Code poses important questions for the effective governance of charity boards in Ireland, including the challenging, and occasionally sensitive, review of board performance and the performance of individual constituent directors.  Compliance with the Code is, however, a baseline measure of effectiveness. Beyond the legal requirements for directors under the Charities Act 2009 and the Companies Act 2014, the qualities, roles and responsibilities of the ideal charity director are largely undefined. Are charity directors different? Is being a director of a charity really that different to being a private sector director? Directors of charities and private sector directors have shared experience in overseeing the challenges: of recruiting, motivating, and retaining the right people; of there being sufficient funds to pay salaries; and of competitors in the same sub-sector.  There are also similarities in how the business of the board is conducted; the calendar of board meetings, sub-committee meetings, and annual general meeting; the annual audit; the risk register; and—increasingly common—evaluation of the board itself.  In both contexts, the chairperson is often selected for their relevant experience, ability to guide decisions or bring order in the face of complexity or challenge. There are, however, factors that are unique to charities, including: charities legislation and guidance from the Charities Regulator; compliance with the Charities Governance Code; a mixed-income revenue model, whereby funding is derived from a combination of restricted-purpose and unrestricted-purpose revenue sources; a volunteer, unpaid board of directors; staff members who may be unfamiliar with private sector/commercial work environments and practices; volunteers, who assist the organisation on an unpaid basis, but who may feel they have a stake/voice equivalent to employed members of staff or even board directors; functioning as public benefit entities, with accountability to end users and the public in general, and the fulfilment of a public-benefit purpose;  service-level agreements with funders. None of this makes life easy for the charity director and can be reason enough for some to shy away from holding board positions.  Nonetheless, there are many experienced and qualified people who wish to give something back to organisations that have positively impacted their lives or to causes aligned with their beliefs and values — often donating significant amounts of their time. How good is good? As noted above, the implementation of the Charites Governance Code has heightened awareness of governance standards in the sector and the importance of the role of the charity director in achieving these standards.  However, beyond meeting base-level compliance with the Code, the debate on how to define highly effective charity boards and directors, and their ability to impact on the success or effectiveness of their governed organisations, has yet to commence in earnest.  In this article, I propose a five-level model for evaluating charity boards in terms of their ‘maturity’ or otherwise (see Figure 1), from a non-compliant to an elite standard. I suggest applying the same model to the evaluations of individual directors. In devising and articulating this charity board maturity model, I considered the following: How mature is a charity board? What aspects of a board’s conduct define its maturity, or otherwise? What is the evidence of a board achieving the higher levels of maturity? For example, is it aware of charity sector challenges and opportunities in Ireland and internationally? What does this mean for director competencies and performance? Is it possible to connect board maturity with the related, distinctive competencies required of individual board members? Non-compliant boards typically have a negative attitude towards governance. They are often unaware of strategic developments within the sub-sector and have a short-term funding focus, relying on basic financial information and outdated policies and procedures. They have no board rotation or succession planning processes. Their AGM processes are weak, and they do not insist on the maintenance of a risk register. Compliant boards adopt a tolerant attitude to governance; however, strategically, they are largely closed to sector developments other than matters of self-interest. Their policies and risk register are compliant rather than effective; their rotation policy is not fully implemented, and the AGM is limited to board members only.   Effective boards see the benefits of good governance and revise board and staff structures to exploit opportunities. They seek funding opportunities to support strategy and use risk registers to manage risk and plan contingencies. They ensure that board appraisals and rotation of directors policies are implemented. AGMs include the attendance of, and participation by, non-board, external members of the charity.  Progressive boards seek continuous improvement in their governance of the organisation. They are keen to benchmark their maturity against the boards of peers. They seek collaboration in new initiatives that reflect market changes. Policies are updated in line with current business/market changes. The organisation’s risk appetite is determined and defined, and the board ensures that its skills gaps are identified and addressed. Board rotations are planned and implemented. Elite boards deliver strategic programmes resulting in significant impact and/or funding. Board members and staff have a collective problem-solving mindset. The charity’s performance is managed using both financial and non-financial KPIs. At the elite level, the board employs long-term resource planning, promotes a robust risk management culture, and reviews strategy regularly. Succession planning includes pro-active identification of new chair and board members, as well as key executive management positions. They embrace and learn from occasional failure positively. Benchmarking director performance As suggested, the five-levels of maturity model can be applied by analogy to the evaluation or benchmarking of individual board directors. The articulation of competencies, or rather their absence, of the ‘non-compliant’ director is straightforward.  They are unfamiliar with the sector or sector trends. They bring no valuable experience or expertise to the board, are unfamiliar with governance frameworks, and generally blame others for problems rather than take responsibility themselves. The compliant director has an up-to-date understanding of the charity, brings technical knowledge to the position, is familiar with the Charities Governance Code and brings governance oversight to the organisation.  Moving up a level, the effective director will have served previously on multiple charity boards and brings valuable experience. Other board members will be aware of their specialist knowledge and draw on their expertise to derive solutions for organisational issues.  Their awareness of internal and external stakeholders will be strong and their input to decision-making will reflect this. The progressive director is a strategic thinker. In addition to having specialist knowledge, they bring a strategic understanding of the niche in which the charity operates and its competitive advantages.  Their leadership qualities are also evident from previous directorships, and they are skilled in multiple business and/or charity sectors.  Accepting change as normal and necessary, a key characteristic is their desire to introduce innovations to the charity’s operations, particularly ideas that are working well in the commercial sector. Finally, the elite director provides economic, political, and social thought leadership to the charity, in addition to the strategic leadership attributes of the progressive director. They possess the qualities required to chair either the board or one of its sub-committees.  Through a broad network of private and public sector collaborators, they are well positioned to plan for the sustainability and growth of the charity.  They set the tone of communication within the board, between the board and the staff of the charity, and between the board and the sector and broader public arena. The style of the ‘elite’ charity director is, paradoxically, non-elitist, collaborative and influential, with an evident social purpose. What next for charity directors? As well as understanding the characteristics, competencies and behaviour of the ideal charity director, and applying these when evaluating boards and their individual members, there are several critical issues that pose important challenges and questions for the sector as a whole: Should there be mandatory term limits for holding the position of charity director and/or defined limits for the role of chairperson and secretary? Should charity directors be paid, and if so, in what circumstances, how much, and under what terms and conditions? How can more experienced businesspeople, qualified professionals and members of the public be encouraged to hold board positions in charities? What can the sector do to facilitate this? What training and development, beyond the compliance level, do charity directors need? Should mandatory, accredited training be introduced before board positions are offered and accepted? What can Irish charities learn from international experience and best practice regarding governance? Should the legislation be changed to make it easier to identify, caution, penalise or remove ineffective charity directors? The implementation of the Charities Governance Code has given an important boost to the raising of standards across the sector and the priority must be to ensure this happens promptly and comprehensively.  The extension of governance into territory beyond compliance is an exciting and challenging move with long-term benefits for all stakeholders.  Defining charity boards in terms of their maturity, from non-compliant through effective to elite, and evaluating director competencies by analogy, will serve to both challenge and develop a trusted and vibrant charity sector.   David Brady is a principal at DB Consulting.  (Views expressed in the article are strictly those of the author.)