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Governance is the key to ESG success. The “E” and “S” hold little sway with investors if they are not supported by robust “G” measures.
Sound governance is the springboard for positive environmental and social impact
Corporate governance – the G in ESG1 – is the system of board and management structures as well as a company's policies, standards, information disclosure, auditing and compliance directing how a company is managed.
It is the key to ESG success. The “E” and “S” hold little sway with investors if they are not supported by robust “G” measures.
A survey of 299 investors found that 91 per cent cited governance as the ESG factor bearing the greatest influence on their investment decisions2. Getting it right really matters.
Strong governance is the means by which good environmental and social intentions become reality but also facilitates sound decision-making and accountability. Investors know this. And companies with the best governance processes tend to report the strongest financial performance3.
Corporate governance is evolving. Today, traditional issues such as business ethics, anti-bribery and corruption, executive compensation, shareholder rights and transparent reporting only form part of the view for ESG investors.
Senior executives are having to embrace wider environmental and societal concerns in their approach to corporate governance, such as addressing the gender and ethnic diversity of their Board and management team, ensuring key stakeholder perspectives (e.g. employee voice) are reflected in short, medium and longer term decision, board members understand how the rising influence of ESG factors is going to affect their risk oversight roles, and the ethics of lobbying activities and corporate tax arrangements, for instance.
They must understand how decisions on such issues impact financial results and stakeholder views. And they need to explain how ESG commitments are integrated into their global business strategy.
Companies have been affected by COVID-19 differently, but all have had to rethink corporate practices – notably supply chains – to adapt to the new normal.
As businesses prepare for a post-pandemic world, good governance will be more important than ever. Securing the “E” and the “S” in ESG will be even more dependent on success with the “G”.
Corporate clients who would like to discuss this topic further should contact:
Dr Arthur Krebbers, Head of Sustainable Finance, Corporates or
Varun Sarda, Head of ESG Advisory
Read the further articles in this series
|1||ESG Environmental, social and governance|