Forum Views - June 2023
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Global
10
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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