In our experience, corporate governance – the system of rules, practices and processes by which a corporation is controlled and operated – as the most critical and impactful of the three ESG factors, as it is arguably the only one that can influence the other two. To us, corporate governance is the soul of a corporation – starting from the top, it dictates and permeates down into the firm’s culture, and ultimately determines its integrity, ethics and fairness in all matters, including environmental and social ones. In short, success in firm governance tends to lead to successes in environmental and social issues as well.
Greater Return Potential.
Environmental, Social and Governance (ESG) issues are taking a larger place of investor mindsets. As the Green Revolution takes hold, corporations’ roles in protecting our planet has driven their environmental practices to the forefront. At the same time, global companies’ treatment of workers in factories and warehouses has ignited debates about corporate social responsibility. Given these, one can be forgiven for believing that the third letter in the ESG framework – governance – should take a backseat to environmental and social issues.