Is good governance the key to unlocking ESG? – Company / Commercial law

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UK: Is good governance the key to unlocking ESG?

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Even before the pandemic, the impact of businesses on the planet and on society was of growing concern. Over the past 18 months, with the global economy slowing, one might reasonably have expected this to step back as pandemic responses and economic survival took priority. If anything the other way around was true …

Driven by the increasingly loud protests of Extinction Rebellion, Greta Thunberg’s powerful voice on environmental issues and the growing distress caused by social inequalities, highlighted by the Black Lives Matter movement among others, ESG s is hoisted to the top of many leaders. list of concerns.

But, what’s particularly interesting is that if the “E” and “S” make headlines, it’s the “G” that will ultimately determine how organizations meet the challenge.

Governance is an enabler, if not the enabler – it is at the heart of any business and determines how a business operates. Leadership plays a critical role in setting the standard and engaging the business in the vision, mission and strategy, but it is governance that provides the basis and levers to effect change.

Yet in all the wealth of articles written on ESG, very little is said about G – perhaps because in practice it is the I&O of ESG that attracts attention. To admire the problem is easy; to fix it is much more difficult.

The governance challenge is compounded by the need to engage with a much larger and growing stakeholder environment. While laws such as the Companies Act required directors to consider broader stakeholders it ignored unforeseen groups and individuals asserting their stakeholder “rights” and did not draw attention to any activities they considered substandard or undesirable. This puts additional pressure on leaders, heightens the need for a robust and transparent governance model and puts a sword of Damocles reputation on the head of any company; even the slightest slippage could cause the wire to break, resulting in reputational damage and, in some cases, unwanted and possibly unwarranted regulatory attention. Trust has never been so hard earned and easily lost.

The continued evolution of ESG also adds more complexity. While many of these issues are not new, the growing awareness and growing calls from stakeholders for physical action mean that an ESG lens must be applied to whatever governing bodies decide and regulators. are also pushing for change, with FCA and FRC making their voice heard more and more. the subject.

This means that governance must be constantly reviewed in light of evolving O&S requirements as well as stakeholder views.

The pressure has never been so great. It is almost impossible to align the needs of different stakeholders both internally and externally. The guidance is incomplete and / or ambiguous and there is little consensus on the standards. The risk of litigation regarding greenwashing / false or misleading claims increases. And, the challenges of applying policies and procedures across the organization and throughout the product lifecycle – particularly difficult in global organizations with different regulations in different regions are profound.

Making the change is difficult; getting it right is even more difficult and the need for constant vigilance is essential. Like many post-pandemic business and operational models, agility will be the watchword of modern governance models, and the pace of implementation and change will be vital in the years to come.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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