ESG 101: What Is Covered in Governance?

  • ESG Consulting Services
Lou Raiola

If you’ve been on the “What’s New?” section of our ethOs website lately, you’ve likely seen a few blogs related to Environmental, Social, and Governance (ESG). We’ve not only covered the overall concept of ESG and what it is as a broad term, but we also took the opportunity to dive deep into what falls under the umbrella of the “Environmental” aspect of ESG as well as what falls into the “Social” category.

Arguably, Environmental and Social garner the most headlines, as climate risk and social implications capture the attention of media, consumers, and other stakeholders.

The “Governance” (or G) factors, however, are equally as important as they allow investors to examine the authenticity and commitment of decision-making by your company’s leadership, including your board of directors, shareholders, and stakeholders as they set policy and responsibilities across your organization.

So, what falls into Governance (in addition to the areas I’ve already mentioned), and why is it so important? Let’s take a look.

What Does Governance Cover in ESG?

Many in the ESG community believe Governance is more widely adopted and has been considered longer by investors as critical to the performance of a company. Governance is key to overall corporate strategy and performance, setting the guidance for allocation of capital and human resources, as well as managing regulatory and tax implications.

Governance covers a number of items, but some key areas that fall into this category of ESG and that your organization should consider are:

  • Organizational purpose
  • Codes of conduct, corruption, and bribery
  • Board structure, diversity, and executive compensation 
  • Risk and crisis management 
  • Shareholder rights 
  • Political contributions 
  • Tax strategy and audit

Adoption of Governance Becoming More Critical

Regulatory pressure has intensified across the world, including here in the U.S. In fact, the Securities and Exchange Commission (SEC) is moving toward overall ESG reporting as mandatory versus its current status as voluntary. This means companies of all sizes are quickly moving to evolve their organizational adoption of ESG.

As this transition and adoption happen, we’ve seen many leaders zeroing in on the following priorities as key:

  • Reviewing and implementing regulatory changes and requirements 
  • Establishing purpose and values over mission 
  • Establishing policies and procedures along with codes of conduct for employees and suppliers 
  • Identifying material topics important to all stakeholders and defining areas of focused improvement 
  • Measuring performance of material priorities 
  • Transparently disclosing these non-financial activities 
  • Ensuring data management and security are up to key standards 
  • Developing and executing Diversity, Equity, and Inclusion (DE&I) standards and programs 

The ESG Ripple Effect

Right now, we’re seeing an “ESG ripple effect” through companies and into their supply chains. This is because stakeholders seek transparency and accountability for a company’s supply chain, and investors’ focus has intensified with current events such as the pandemic, climate change, and the Russian invasion of Ukraine. 

And, it’s not just “regular” supply chain issues you may think of (store shelves being empty, companies not getting products they need, etc.). Topics — such as human rights, forced labor, greenhouse gas emissions, and bio-diversity loss — are all tied to supply chain risks. Accordingly, there is an ESG ripple effect moving through companies into their procurement as pressure to perform on ESG highlights the inclusion of how a company’s suppliers are performing. 

Some of the leading areas of focus on suppliers include, but aren’t limited to: 

  • Women and minority-owned businesses
  • Data security 
  • DE&I commitments of suppliers 
  • Labor practices 
  • Greenhouse gas emissions 
  • Adherence to ESG standards and frameworks 

Supporting Your ‘Governance’ Work

Here’s the good news. You don’t have to figure out ESG on your own. Our ethOs team is uniquely positioned to support your organization with risk, purpose and culture, and ESG integration. Specifically, we can work with you by:

  • Ensuring organizational adoption of ESG
  • Conducting an ESG risk assessment 
  • Performing an industry review to see how your organization stacks up
  • Helping align your organization with your stakeholders and shared values positioning 
  • Providing key solutions 

We’ve said it before, and we’ll say it again — at ethOs, we embrace ESG as a guiding framework to always do what’s right, and our ethOs business is built on the foundation of helping you in all areas of your organizational and engagement journey.

If you’re interested in learning more about this, don’t wait to start. Reach out to us today for a consultation!

June 22, 2022