When it comes to ESG (environmental, social, and governance), the spotlight often falls on environmental and social issues. However, it is vital to acknowledge that strong governance forms the bedrock for companies to cultivate an effective ESG strategy. It fosters trust, enhances long-term value creation, promotes accountability, and ensures regulatory compliance. Companies that prioritise good governance principles are more likely to achieve their ESG goals and contribute positively to society and the environment.
Let us explore the role of governance in ESG and how it can help companies stay true to their sustainability commitments. However, before that let us address the ESG gap that is currently present in the corporate world.
The ESG gap: A challenge to corporate sustainability
-
Misalignment of intent and action
In an era where ESG is increasingly gaining prominence in corporate agendas, a disconcerting discovery has come to light. Despite three-quarters of respondents in our 2022 survey asserting that ESG is a growing priority within their organisation, a significant gap exists between intent and action. Fast forward a year, and we find that more than half (55%) of these organisations have yet to employ carbon footprint monitoring or impact measurement technology. A staggering 60% lack an ESG strategy with key targets. The point is, merely stating commitment towards ESG does not equate to tangible results. Companies need a robust governance structure and framework to bridge the gap between intent and action.
-
Less focused on achieving net zero target
Another cause for concern is the imbalance in focus when it comes to ESG priorities. A majority (62%) admit that compliance and reputation enhancement are their primary incentives, with 79% say that meeting net zero targets is not a main driver for their ESG strategy. This brings into question the authenticity and seriousness with which companies are approaching ESG. Is it just a box-ticking exercise or a genuine commitment towards responsible and sustainable business practices? This is where governance plays a critical role in steering companies towards the right direction and ensuring that ESG remains a top priority.
-
The dangers of greenwashing
Insufficient commitment to genuine ESG implementation jeopardises the risk of descending into 'greenwashing', a phenomenon in which companies present a misleading facade of environmental and social awareness. This lack of authenticity, if exposed, could jeopardise an organisation's reputation, diminish its appeal as an employer of choice, and deter environmentally and socially aware customers. Furthermore, 'green' investors and funds may hesitate to invest, potentially leading to significant financial repercussions in the long run.
Role of governance in ESG implementation
The question arises, how can companies ensure that their ESG initiatives are genuine and not just for show? The answer lies in robust governance practices. Companies with strong governance structures in place are less likely to fall prey to greenwashing and more likely to achieve meaningful progress towards sustainability goals. Here's why:
- Clear accountability and transparency: Good governance fosters a culture of accountability, where companies are transparent about their ESG performance, challenges faced, and plans for improvement. This level of openness prevents companies from overstating their achievements or hiding deficiencies.
- Effective risk management: A well-governed company is better equipped to identify and manage environmental and social risks proactively. By addressing potential impacts, companies can avoid negative consequences that may arise from superficial ESG initiatives.
- Alignment of interests: With strong governance practices, the interests of all stakeholders are aligned with those of the company. As a result, ESG goals become intertwined with business objectives instead of being seen as an added burden.
Driving sustainable growth: Our commitment to ESG excellence
At Advanced, we hold a deep commitment to our ESG strategy, which is deeply interwoven into our business model and operational practices. Our robust governance structure ensures that we are not merely paying lip service to ESG, but actively aligning our actions to our intent. From implementing technology to monitor our carbon footprint to setting key ESG targets, we have taken significant strides towards closing the ESG gap.
Now, the question that comes to mind is: Can ESG ensure the long-term viability of your business? Find out in the upcoming blog post of this series. In the meantime, we invite you to download our latest Annual Trends Report for a more thorough exploration of these topics and a comprehensive understanding of the current ESG landscape.
