Elevating  the ‘G’ in ESG: The critical importance of good governance

It’s no surprise that the environmental and social performance of businesses has come under greater scrutiny in recent years. As we face up to environmental and social challenges as a global community, all stakeholders — consumers, employees, investors, shareholders and the community — demand higher standards and more transparency into the environmental and social performance of the companies they support. 

That’s why more organisations have been implementing environmental, social and governance (ESG) strategies. Best-practice ESG creates a formalised structure that seeks to identify, implement, monitor and measure the critical success factors that determine a company’s environmental, social and financial performance. 

However, while most outward focus falls on the environmental and social pieces of the ESG puzzle, good governance — the ‘G’ is ESG — comes before all else. 

Governance drives company culture and sets performance standards across the organisation. It determines the effectiveness of your day-to-day operations, and takes a long-term view to inform effective and consistent decision-making. 

The Critical Importance of Good Governance

Here’s how best-practice ESG management can improve your governance and set your business up for short- and long-term success… 

Build a better board

Board composition is a critical success factor for companies in today’s complex business environment. ESG sets a board strategy that seeks to identify and recruit the right board members to drive your company’s mission, vision and objectives. Diversity in skills, experience, background and gender on the board creates the wide perspective your company needs to most effectively negotiate present and future challenges. 

At board level, an effective governance strategy also aims to avoid conflicts of interest among board members, and maintain support for a clear and unified strategic direction for the company. 

Ensure compliance

Effective ESG strategies identify your company’s regulatory compliance obligations, implement a compliance plan, and monitor compliance performance. 

Compliance management is an important step to achieving best-practice operation. It helps companies to avoid financial penalties for non-compliance and protect against reputational damage. It also helps to ensure operational stability, and builds investor confidence. 

Optimise business processes

Good governance takes a big-picture view of your organisation. ESG reviews your business processes and identifies areas for improvement. It breaks down departmental silos, connects workflows and fosters collaboration across the organisation. 

This is how companies build genine agility. An agile company can respond to challenges as a single unit, and mobilise organisation-wide business processes to deliver unified, strategic solutions. That doesn’t happen without good governance.

Proactively manage risks 

Governance strategies seek to identify risk factors and implement proactive action plans to mitigate risks before they impact the business. This may involve maintaining updated risk management processes and disaster recovery plans. 

With the right governance approach to risk management, your company can move from simply weathering a storm to finding the silver lining in the cloud. The Covid-19 pandemic certainly made this clear for many companies. According to Oxford Business Group’s ESG CEO Survey, more than 60 percent of respondents said that the pandemic has either moderately or significantly impacted their understanding and/or appetite for ESG. 

Monitor and review performance

Transparent management reporting is an important principle of corporate governance. ESG strategies set a range of metrics that are used to measure the company’s key performance drivers on an ongoing basis. 

This helps to inform data-based decision-making at management and board level, draw out real business insights, and enables a proactive and consistent approach to keeping the company’s operational processes and resourcing aligned to achieving its business goals. Best-practice reporting is also critical for demonstrating business integrity, providing transparency to shareholders, and building long-term investor confidence.

Governance is essentially the DNA of your company. It impacts everything from company culture and day-to-day business processes, to board-level decision-making and the overall strategic direction of your company. Without good governance, your company is operating on a wing and prayer. With good governance, it is an agile, unified unit on a well-defined path to achieve shared business goals. 

The Growth Activists can help you achieve best-practice governance with an effective ESG strategy. Contact us at hello@growthactivists.com for a chat about how we can turn proactive thinking into ESG action.