ESG factors have become critical elements that business must address to remain competitive and legally compliant. ESG, as a concept have existed for many years, but it is only now that regulators and enforcement agencies try to call corporates and individuals to account for ESG failures. Poland is not an exception to this trend.
While many focused on environmental performance and social indicators such as diversity or modern slavery there has been comparatively little emphasis on corporate governance (the "G" in ESG). Governance in ESG is foundational to the realization of both "E" (Environmental) and "S" (Social) parts of ESG.
Governance in ESG – what does it mean?
Governance in ESG relates to the very heart of a company: how companies are directed and controlled, how leaders are held accountable and the leadership show integrity. Governance covers a system by which a company is managed and operated. Its fundamental objective is to help build the environment of trust, transparency and accountability that is key to ensure stability and encourage long-term investments. Understanding governance risks and opportunities in decision-making is critical, as poor corporate governance practices have stood at the core of some of the biggest corporate scandals. Due to that corporate governance is a core component of ESG.
Governance in ESG covers two main areas: corporate governance and business ethics. Corporate governance includes factors such as: corporate structure, board composition, corporate leadership, risk and crisis management or shareholder rights. Business ethics on the other hand refers to the values that a company adopts to act in a responsible way, which includes issues such as integrity, fair competitive practices, anticorruption, tax compliance or whistle blowing.
What are the benefits of focusing on governance in ESG?
Governance sets the tone of your business and has many benefits.
It can improve the performance of the business, help it to become more stable and productive by faster and safer growth. Practicing good governance naturally builds a company's reputation and increases brand value. Companies with well-functioning corporate governance systems tend to be preferred as a long-term investments by investors so it may enable your business to enter new markets. An investor is more likely to invest in a credible business with a clear direction and good oversight.
Governance helps to mitigate risk by implementing policies and procedures that ensure efficient identification and evaluation of risks as soon as they arise. Good governance system may help your business to stay ahead of possible risks, remove opportunities for fraud, corruption or mismanagement. It may also ensures a drastic reduction of any sort of safety, performance, or legal issues that may arise and affect your company. An effective governance framework provides shareholders with the comfort that their interests will be safeguarded by the board and management. Moreover, by developing an effective governance framework new managers will be more satisfied to join your company knowing that compliance with legal requirements and industry standards have been formally defined and are followed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
