Forum Views - June 2023

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FORUM VIEWS - JUNE 2023

efore there was ESG, we had boards of directors and

corporate governance. When I started my career in ESG

Bwith the World Bank’s International Finance Corporation

(IFC) in 2007, not many people knew or had a desire to

understand what ESG was. Corporate governance, on the other

hand, was the center of the business world’s attention.

Companies had been shaken by a series of corporate scandals

and came to the realization that everything originates from

strong governance. The erected measures and conversations

around governance felt so intense that we believed we

wouldn’t lose sight of this subject ever again. But did we?

Fast forward to today, ESG turned into one of the trendiest

corporate marvels. We know that along with other things, ESG

stands for equitable rights. But does it follow its own advice

and treats all three dimensions of ESG equally? For every single

mention of “corporate governance” on the web media, there

are five that are dedicated to “climate”. The environmental

factor in ESG dominates news, corporate agendas, and efforts.

Understandably, climate risk poses serious threats and

deserves urgency and high prioritization.

However, the situation raises some valid questions. Have we

put corporate governance on the back burner and downgraded

it as a priority? Do we believe that environmental and social

factors can be properly managed without a strong foundation -

governance?

Let’s examine the situation and discuss why corporate

governance should always be the highest priority in the ESG

trifecta.

While the importance of strong governance in ESG is not

disputed, governance has been overlooked or given less

importance compared to its peer - the environmental factor.

We might argue that corporate governance has been around

for a longer time and has a more established structure and

consensus on what it stands for. However, if not constantly

brought into the spotlight and updated to reflect the dynamics

of change around us, governance issues might stagnate and

turn irrelevant just like any other aspect of business.

The Neglect of Governance

Insights

THE FORGOTTEN PIECE OF ESG

Tahmina Day

ESG, Risk,

and Governance Leader

Part of the reason for the neglect of governance in ESG may be

due to a lack of standardization in measuring and reporting on

governance practices. While there are several voluntary

frameworks for reporting on environmental and/or social

factors, such as the Task Force on Climate-related Financial

Disclosures (TCFD) and the Global Reporting Initiative (GRI),

there is no widely accepted framework for reporting on

governance practices.

The regulatory reporting landscape follows a similar pattern.

The EU’s European Sustainability Reporting Standards (ESRS)

exposure draft, for example, includes two governance

standards (ESGR G1 and G2) that capture a limited set of

governance topics. They are also smaller in scope in

comparison to six environmental standards and four social

standards.

If a business community would like to continue with the

concept of ESG and not just “ES”, it is time to give governance

an equal amount of attention and priority.

Fast forward to today, ESG turned into

one of the trendiest corporate

marvels. We know that along with

other things, ESG stands for equitable

rights. But does it follow its own

advice and treats all three dimensions

of ESG equally? For every single

mention of “corporate governance”

on the web media, there are five that

are dedicated to “climate”. The

environmental factor in ESG

dominates news, corporate agendas,

and efforts.

(Stuart, Florida, United States)

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