When people think about ESG, they usually focus on environmental issues like climate change and social issues like diversity. However, while environmental and social issues receive most of the attention, governance is the foundation of the ESG agenda. It accounts for not only one-third of the ESG equation, but also serves as a prerequisite for fulfilling all ESG objectives. That is why at TheESGBusiness, we give it equal weighting to social and environment
So, what exactly do we mean by governance? In layman’s terms, it’s the set of rules, policies, and processes that govern how a business is run and managed. Its primary goal is to ensure that the business operates in an open and accountable manner, with leadership acting in the best interests of all stakeholders.
Good governance will often include policies and procedures around:
- Board & management quality and integrity.
- Board structure.
- Ownership and shareholder rights.
- Remuneration.
- Auditing and financial reporting.
- Stakeholder governance.
When it comes to ESG, governance should be considered as a means of preventing and mitigating risks, as well as a source of opportunity and competitive edge. According to a Dilligent Institute report published in 2019, the top fifth of corporate governance performance in the S&P 500 outperformed the lowest fifth by 15% over a two-year period.
Some of the major advantages of excellent governance are:
- Mitigates risk by implementing policies and procedures that ensures key people within the business identify and evaluate risks as soon as they arise.
- Boosts investor, bank, and lender confidence in the business, leading to increased capital flow.
- Improves corporate reputation by demonstrating effective quality, risk, and performance management, regardless of market conditions.
- Improves decision-making by establishing defined responsibilities and roles.
- Improves reporting across all ESG components.
- Improves internal controls for effective corporate management.
- Improves strategic planning by providing quick access to information, clear roles and duties, and effective communication among members.
- Improves employee retention by creating a stable working environment.
- Improves compliance with rules and regulations, positively impacting the business’s risk profile.
- Prevents conflicts of interest and malpractice through established explicit guidelines.
The most important conclusion from this should be the significance of governance in the ESG journey in ensuring that businesses behave ethically towards all stakeholders.
Please contact us if you’d want TheESGBusiness to assist you in ensuring that your company has the
