Sustainable business: tackling the acronym

Isabella Calderon Hoyos at OMMAX explains why we cannot forget the importance of the G in ESG

 

In the realm of investing, the acronym ESG (Environmental, Social, and Governance) has become a prominent buzzword. It serves as a framework for evaluating a company’s performance and impact in these three crucial areas.

 

When discussing ESG, the focus often revolves around environmental initiatives, such as decarbonisation, or social aspects, like fostering diverse cultures and inclusive societies. 

 

It is the G in ESG (Governance) that frequently takes a backseat in conversations. Despite its seemingly secondary role, strong governance serves as the vital ingredient needed for corporations to drive meaningful progress across environmental and social initiatives. 

 

Defining governance

Governance focuses on a company’s leadership, transparency, accountability, and adherence to ethical practices. While the environmental and social aspects of ESG tend to dominate discussions, governance - while the less exciting and headline-grabbing of the three - is just as important. It encompasses the structures, policies and processes that guide decision-making within an organisation.

 

Effective governance ensures that companies operate transparently, manage conflicts of interest, and make decisions that consider the long-term interests of all stakeholders.

 

Internal governance strategies are crucial to ESG

Corporate governance plays a pivotal role in introducing and exacting strategies that can effectively decarbonise operations and better support employees and their communities within the ESG framework. Without the G in ESG, activities and initiatives can become ad-hoc, lack strategic purpose and can lead to greenwashing.  

 

However, the role of governance extends beyond mere structural frameworks. It involves establishing an open feedback culture and constant communication across hierarchies in the organisation. This is crucial to remain responsive to challenges and opportunities. Embracing scrutiny and accountability fosters a culture of continuous improvement, aligning strategies with changing ESG priorities.

 

Numerous high-profile cases have highlighted the detrimental consequences of governance failures. One example is the Volkswagen emissions scandal, where the automaker deliberately manipulated emissions tests, damaging the environment and eroding public trust.

 

Another notable example is the Wells Fargo scandal, where the bank created millions of unauthorised customer accounts to meet sales targets. This breach of trust not only resulted in hefty fines but also tarnished the bank’s reputation. 

 

These instances of governance failures serve as stark reminders of the potential damage that can be inflicted upon companies and their stakeholders when governance is disregarded.

 

Operationalising ESG with data governance

Governance can be difficult to put into practice without clear methods for existing frameworks to be assessed, and progress measured. Additionally, companies need clear governance structures and methodologies through which they can build, track and measure wider ESG goals. One of the most robust ways companies can manage this process is through data governance and technology. 

 

Aggregation tools are instrumental in the collection and consolidation of vast amounts of ESG-related data from diverse sources. These tools streamline the process of gathering information on environmental impact, social responsibility, and governance practices, enabling companies to have a holistic view of their performance. 

 

Analytics tools play a crucial role in analysing and interpreting the collected data. Companies can use analytics to determine the impact and actuality-of measures, and uncover valuable insights and trends related to their ESG efforts.

 

These insights enable better understanding of the impact of environmental initiatives, social responsibility programs and governance practices on the company’s overall performance, and can help companies manage ever-changing stakeholder expectations.

 

By identifying patterns and correlations within the data, organisations can identify areas of strength and weakness, leading to more targeted strategies and improved ESG outcomes.

 

Furthermore, AI-powered solutions have revolutionised the monitoring and execution of good governance practices. Machine learning algorithms leverage large datasets to automate data processing, identify patterns, and generate predictive models. This automation enhances the efficiency and accuracy of ESG reporting, reducing the manual effort required for data analysis and ensuring timely and reliable information.

 

AI solutions can also facilitate benchmarking exercises, allowing companies to compare their governance practices against industry standards and best practices.

 

Additionally, technology-driven employee listening solutions can provide valuable insights into employee sentiment and engagement, helping organisations improve their corporate culture and better address the needs of their workforce.

 

Governance is not an afterthought

Governance serves as the backbone for ESG initiatives to deliver meaningful impact and drive positive change. By prioritising governance alongside the environmental and social aspects of ESG, organisations can establish a solid foundation for sustainable value creation and make a genuine difference in the world.

 

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Isabella Calderon Hoyos is a Partner at OMMAX

 

Main image courtesy of iStockPhoto.com