February 1, 2023 | Amanda Khatri
Estimated reading time: 5 minutes
‘G’ for Good Governance
The focus on the ‘E’ of Environmental, Social and Governance (ESG) is evident as the impacts of climate change are being felt globally. From the likes of Greta Thunberg, the Swedish environmental activist to vegan restaurants and investors shifting their focus to more sustainable stocks for longevity purposes, it’s clear that there is a societal shift towards advocating for environmentally friendly products and services. In parallel to this transformation, regulators worldwide have developed ESG regulations and guidelines against greenwashing to promote sustainability and expose firms that make false eco-friendly claims.
There have also been significant strides in progress attributed to the ‘S’ – Social part of the ESG acronym, from diversity and inclusion regulations and equality within a firm. But, what about ‘G’ for Governance?
What is good Governance?
The United Nations defines Governance as “all processes of governing, the institutions, processes and practices through which issues of common concern are decided upon and regulated.”
Good Governance “adds a normative or evaluative attribute to the process of governing.” This could be adhering to human rights laws, being transparent and accountable for the processes at a firm, legitimacy, sustainability, and company values that “foster responsibility, solidarity and tolerance” whilst tackling operational challenges effectively. Good Governance also promises to deliver on civil, cultural, economic, political, and social rights and the key attributes pertinent to governance are transparency, responsibility, and responsiveness to the needs of employees.
Where does good Governance start? It is up to those in leadership roles at the C-Suite level to ensure good Governance practices are implemented from the top down. By hiring the right people at the top, good Governance standards will follow as only then will the C-Suite be filled with those who actually care about the company’s environmental, social and governance impact.
Just as battling climate change can be a mission taken on by each individual, firms that emit carbon emissions or defy diversity and inclusion rules are also actions committed by a single person or a group of persons at the decision-making level. For example, some do their bit by driving electric cars, giving up meat and purchasing sustainable products, with the goal of being environmentally friendly. In terms of Governance, one person’s values and views can slowly impact the rest of an institution. By ensuring good Governance is in order, company values for ‘E’ – Environment and ‘S’ – Social have a much better chance at progressing as ‘E’ and ‘S’ are essential components of ‘G.’
Governance and accountability
Accountability is the acceptance of responsibility for honest and ethical conduct towards others and when acting on behalf of a company. A company’s accountability extends to its investors, shareholders, employees, and the wider community.
Individual accountability is a term that was first introduced in the United Kingdom, as a response to poor governance that led to the 2008 financial crisis. Regulations such as the Senior Managers and Certification (SMCR), Banking Executive Accountability Regime (BEAR) and the Senior Executive Accountability Regime (SEAR) are examples of nations embarking on a deeper objective of Governance – transparency and accountability. These rules aim to increase corporate responsibility by deterring misconduct and improving individual accountability for Chief Compliance Officers (CCOs). The development of individual accountability regulations denotes the global regulatory mission of battling corruption and building a responsible financial industry with good Governance standards.
Through accountability regulations, starting with executives and CEOs who have a greater influence over a firm’s ESG decisions, good Governance practices can be sufficiently integrated into a firm’s values and policies. As a result, a company’s impact on the environment and society can be properly scrutinised and enhanced.
How can your firm achieve good Governance?
Each component of ESG does blur together. Governance is a key element of overall corporate strategy and performance; therefore, good governance has an impact on improved social and environmental responsibility. We’ve listed 9 ways your company can implement good Governance standards:
1. Have the right people at the top
At the hiring stage, ensure that the right individuals are employed at the C-Suite level as this will impact how your company operates. This includes looking into whether the firm’s vision and values are reflected in this person and their employment history and whether these portray is the right fit. Do they possess the leadership skills and abilities to make the correct choices to ensure company objectives are met? And always question the C-suite on the decisions made to understand their deeper objectives.
2. Governance structure
This includes defining roles and responsibilities, establishing the decision-making process, and defining a clear chain of command. Embed strategic direction and leadership within the structure. If an issue occurs, employees know exactly who to go to so it can be resolved in an efficient manner.
3. Clear company vision and values that add value
Ask yourself – ‘what are the goals of this organisation?’ By establishing a vision for the firm and values, employees can learn from the top down what behaviour is expected and which values they need to align with. It will also help employees always act in the best interest of the business.
4. Adhere to ethical principles
Firms should maintain high standards of integrity and ethical behaviour by having a code of conduct in place for guidance.
5. Transparency and sufficient reporting
Be transparent about company operations and provide the relevant stakeholders with regular updates on performance. This also includes providing regulators with accurate reports that showcase which regulations your firm is implementing. With CUBE’s Automated Regulatory Intelligence (ARI), firms can implement effective and auditable compliance, readily available for regulators and internal audit teams.
6. Risk and compliance
Implement a robust risk management and regulatory change management framework that enables your firm to identify, assess, respond, and manage risks or gaps in compliance effectively. The risk system should have the ability to send alerts in the instance of a regulatory gap. Automated Regulatory Intelligence (ARI) uses AI and machine learning to automate the entire end-to-end compliance process, provides a complete regulatory inventory relevant to your firm and allows compliance teams to plan ahead by delivering alerts to upcoming regulations.
Serve all staff and stakeholders in a timely manner, should they have a query. Everyone should be able to voice their opinions and have the right to freedom of expression.
8. Encouraging diversity and inclusion
Promote diversity and inclusion throughout the company by instilling policies and procedures that address discrimination in the workplace and promote equal opportunities. This should also be applied throughout your workforce to ensure everyone has the same opportunities.
Last but not least, good Governance means taking full responsibility for any actions taken that have impacted others or the environment.
Keep ahead of emerging regulations by speaking to CUBE.