The forgotten ‘G’ in ESG

In conversations about ESG (Environmental, Social, and Governance), the letter ‘G’ (which stands for governance) is often overlooked or forgotten. The focus tends to be more on the environmental and social aspects, leaving governance in the background.

This can be linked to several factors, one being that environmental and social issues tend to grab more headlines and public attention. Climate change, sustainability, diversity, and social justice are all topics that surround our daily lives and impact our futures, generating a lot of discussion/activism. As a result, governance (which refers to the systems, processes, and controls that oversee a company's behaviour and decision-making) may not receive the same level of public interest.

Another factor is that governance is often seen as less tangible and harder to measure compared to environmental and social factors. It involves internal policies, executive decision-making, and other corporate practices that are not as visible to the general public. Therefore, it may not be as easily understood or prioritised in discussions about ESG.

However, without proper governance, environmental and social initiatives can lack direction and fail to achieve their intended goals. In this article, we explore the ’G’ in ESG and outline why it is fundamental to all other aspects of an organisation’s sustainability.

What is governance and why does it matter?

Governance has everything to do with an organisation's internal policies, leadership structure, decision-making processes, and compliance practices. It's crucial for long-term success because it helps organisations to make more informed and strategic decisions, maintain stakeholder trust, and create value. On the flip side, weak governance can often lead to financial losses, reputational damage, and regulatory issues.

Regulators, investors, customers, and employees are increasingly interested in organisations that prioritise strong ESG values through transparency, accountability, and effective risk management. Companies with strong ESG performance may outshine competitors in their market, making good governance a vital part of any robust ESG strategy.

Three key drivers for effective governance are:

• Risk management
  Organisations should have procedures in place to continuously identify, assess, and manage risks related to the environment, social responsibility, and compliance. This helps with minimising threats and maximising business opportunities.

• Building trust and credibility
  Transparency around operations, finances, and decision-making builds stakeholder trust and helps to prevent corruption as well unethical behaviour. It’s also important for organisations today to provide evidence of their ESG agendas, especially for those in the public sector in which there are more stringent regulations that must be adhered to.

• Compliance
  Ethical behaviour and adherence to laws protects the company’s reputation, its stakeholders, and colleagues, ensuring long-term sustainability. Organisations should have clear policies and procedures in place to ensure easy compliance with regulations and hold the executive team accountable for the management of ethical behaviour within their business.

How to achieve good governance

Achieving good governance requires a firm commitment from the leadership team, but it also requires the right tools to be embedded. Tools that improve the efficiency of meetings, capture decisions and actions, provide simple overviews of progress towards goals, and simplify/promote the practice of risk management.

It is also important to recognise that good governance goes beyond compliance and involves transparency, accountability, and strategic planning. Clarifying the board's role in strategy development and performance monitoring is essential. Maintaining effective policies, fostering a culture of good relationships, and continuously improving internal structures are also crucial.

Implementing a digital transformation project can help improve these key contributions. Organisations are increasingly investing in specialist software to support their governance framework and replacing the complex spreadsheets, file stores, email chains and the other inefficient tools they previously used.

Long-term success

Governance is a fundamental consideration when evaluating an organisation's impact on the world, and is vital for their long-term success. Companies with strong governance methods promote sustainable, compliant, and ethical business practices while benefiting from increased value and positive financial returns.

It is important to remember that ESG is a holistic framework that encompasses all three pillars – Environmental, Social, and Governance. By considering all these components, companies can create a more comprehensive/effective approach and become leaders for responsible business operations.

To find out more about how Decision Time supports enhanced governance within the ESG framework, please visit: Decision Time | Board Meeting & Risk Management Software.