Like the bass guitarist in a band, the G is often the least conspicuous when it comes to ESG. Governance – what it does and what it adds - can be hard to define. Governance seems to capture our attention far less than environmental and social factors, but its role is vital. So, here is my attempt to bring sustainability governance to fore.
Governance is the internal mechanisms and structures that enable the company to formulate and implement its sustainability strategy. It provides the framework to set the right goals and create the conditions for achieving them.
Not inspired by a set of mechanisms and structures? You might want to think about it in this way: governance is about leadership and decision-making. At its core, sustainability governance is a mind-set. It requires everyone in the business – starting with the board – to shift from thinking about short-term financial outcomes, to long-term thinking about multi-generational outcomes. To accept that risks to the planet and society are risks to the business. To move away from shareholder primacy and towards the interests of all stakeholders.
In practice, it can take shape like this:
Risk management – an integration of sustainability risks with enterprise risks.
Oversight, accountability and incentives – there is board oversight of sustainability through a role at board level and/or a committee reporting to the board. Sustainability targets are formalised into KPIs and tied to compensation.
Board capability – this starts with board fluency in ESG. It can progress to board composition: aiming not only for a diverse skill set but ultimately for a diversity at board level that reflects the diversity of the company’s stakeholders.
Sustainability governance is also about culture. This is an organisational culture with a focus on ethics, transparency and collaboration. Ethics are articulated in the company’s code of conduct, supplier code of conduct, anti-bribery and corruption policy, human rights and modern slavery policies. Transparency is the basis for supply chain management and regulates the company’s ESG reporting. Effective grievance mechanisms and a workable whistle-blower policy reinforce openness. As for collaboration: this is how the sustainability strategy is embedded in the operating model. There is a shared understanding that sustainability is not confined to one team but implemented by collaboration across all functions.
How it takes shape in a company will depend on the context. But governance can make all the difference. Just like Sting and Flea.