Governance is the most important element of environmental, social and governance (ESG) principals, because without good governance, efforts to support environmental and social priorities likely will fall short.
As companies adopt an expanded view of the constituents they serve, environmental and social issues have gained more prominence in management and board agendas. Stakeholder capitalism has become one of the key concepts guiding how companies and boards view their purpose and responsibilities. Investors, employees, customers and regulators are pressuring companies about their commitments to issues like
- Climate change
- Pollution and carbon emissions
- Energy efficiency
- Diversity, equity and inclusion (DEI)
- Employee wellbeing
All of this puts pressure on board members to act or risk losing customers, clients and talent. Good governance, then, is of paramount importance. Boards, working with management, have to sort through all of the noise — opinions, ideas and information — and make rational, informed decisions about how to set priorities, allocate resources and make investments.
We have identified four key issues that are part of a good governance program: