ESG (environmental, social, and governance) reporting and tracking has become a way for companies to understand and monitor their internal environmental and societal impacts. Of course, with the current state of the world, the environmental and social risks have gained a lot of focus, but what about the “G” in ESG?
With most of the pressure for paying attention to ESG factors focusing on a call to action for improvements to environmental impact and social issues, it is easy to overlook a company’s governance strategy. Doing so could be detrimental to your business, increasing risks and even lowering your ability to retain employees.
Understanding Governance Risks in ESG
Corporate governance, defined by BDC, is “the practice of ensuring a corporation conducts itself accountably, fairly, and openly in all its dealings.” Your governance strategy is the backbone of your company, and your environmental and social strategy too.
Your company’s environmental or social commitments stem from corporate governance. Having good corporate governance ensures transparency and accountability – this could include anti-corruption practices, good incentive structures, having well-equipped leadership, ensuring the integrity of ESG disclosures, determining that ESG indicators are ethically pursued and reported, and ensuring there is no contradictory lobbying activity.
What exactly does governance include though? A variety of business factors! Here are a few to greater your understanding :
- Business ethics
- Anti-corruption and integrity
- Risks and crisis management
- Incentive structures
- Tax strategy
- Data strategy
- Fair competitive practices
- Supply and value chain management
- Stakeholder engagement
The Impact of Governance on Stakeholders
While a corporate governance strategy may be set by the board of directors, the chosen strategy or strategies may have an impact on many more stakeholders.
For employees, ESG factors are becoming more important. A Deloitte study found that “55% of respondents report that they research brands’ environmental impact and policies before accepting a job, and more than 40% report that they already have, or plan to, change jobs due to climate concerns.” What does this have to do with your governance strategy? Key aspects of governance include stakeholder engagement and risk and crisis management. As it is the backbone of how you are tackling environmental and social issues and communicating this to stakeholders, if you aren’t focusing on executing this you may lose employees or miss out on hiring your ideal candidate.
It doesn’t just impact employee retention and recruitment, it can impact investors and lenders too! It is increasingly becoming more common for lenders and investors to only do business with companies with good ESG performance. What are they looking for in the way of governance?
- Ethical performance
- Regulatory compliance
- ESG accountability
How can you prove you are doing this to investors, lenders, and employees? Good data.
Data Governance – Minimizing Risks in ESG Practices
In general, having good data governance can benefit a company greatly. Concerning ESG practices specifically, having good data governance is even more important. Good data is key to being able to make informed and timely decisions, and can also back up what you are saying you are doing – improving transparency and accountability. This could help you gain the trust of those stakeholders mentioned before.
With incoming and existing regulations around ESG factors, having good data governance is even more important. Not only will it enhance your ability to comply, but also save you time and money when storing and managing data, easily managing risks, and increase your ability to make timely and informed decisions. As we stated before, governance is the backbone of every environmental and social strategy, and data governance comes into play there. Protecting your data and ensuring it is useable to make decisions and show your efforts is more important than ever as we work collectively towards a sustainable future.
Improving Governance – Where to Start
To understand how you can improve all aspects of your governance strategy, you need to know where you are lacking. Speak to stakeholders and understand their expectations when it comes to your governance strategy and where they think you could improve. ScriptString.AI also offers a free ESG Assessment which includes governance factors to give you an idea of where you currently stand.
Additionally, look at your data as well as your peers. Know what others are doing that you are not and set goals to improve your governance. We know this can be quite overwhelming. Dealing with legacy data alongside the inability to benchmark against peers due to a lack of resources can be time-consuming. Focusing on improving your data governance can help with this.
Understand the resources and technological solutions out there that can help. If you want to learn more, set up a time to chat with us at ScriptString.AI. We can walk you through how AI-driven ESG data solutions can help improve your data governance and keep your data safe and secure. At ScriptString, we want to help make it easier for organizations when it comes to ESG. Book a demo today to learn more.