Green Is Not The Only Colour
Governance is more than compliance and risk. It is the framework that holds people and their actions to account.
Bad governance can bring down companies. It can be the downfall of boards, start-ups, countries and even Governments.
But relentless focus on climate and social activism, without addressing ESG holistically, has become a worrying trend.
According to The DFIN ESG Pulse Report, while four in five (81 per cent) UK and US business leaders feel they are performing better than their industry’s average on ESG issues, there is much less confidence regarding their organisations’ corporate governance. In contrast, less than 30 per cent of executives feel confident they are outperforming their industry peers on governance issues, such as internal controls, lobbying and board composition.
Unlike environmental or social data, governance data has been collected, reported and analysed for much longer. According S&P Global, a company that ranks below average on good governance is prone to mismanagement and risks their ability to capitalise on business opportunities. They simply won’t be as good as they could be.
This is echoed by EY who revealed that as well as providing a route to greater risk resilience, above all, ESG is a major commercial and growth opportunity.
So why has ESG become interchangeable with The Environment, when governance has the longest track record and predictability of success?
Investors, markets and regulators want to see structure, values, transparency. They want to know how you protect customer data, intellectual property and how likely a hacker can infiltrate your systems.
Without governance, if executive remuneration is linked to environmental performance, greenwashing could be rife. Like all aspects of ESG, robust, authentic disclosure is vital.
It does not matter if you are private or public, good governance and financial reporting drives efficiency and growth. If your sights are set on a future listing or acquisition, governance is the deal breaker.