over time . S & P Global assesses companies ’ governance performance by assessing four factors : structure and oversight , code and values , transparency and reporting , and cyber risk and systems .
Gender diversity and equity is another highprofile governance issue , with many institutional shareholders demanding better representation of women on corporate Boards and in executive ranks , and equal compensation and mobility for women and people of colour . More companies are emphasising the financial benefit of creating inclusive workplaces in an effort to increase diversity and inclusivity . S & P Global Market Intelligence research revealed that firms with more women on their Board of Directors had greater financial performance than less diverse companies .
Understanding the “ G ” in ESG is critical , as governance risks and opportunities will likely increase as social , political , and cultural attitudes continue to evolve . S & P Global evaluates governance factors in all of its ESG Solution offerings . Notably , in addition to determining whether the entity is actively and effectively managing its exposure to governance risks and opportunities , the S & P Global Ratings ESG Evaluation weighs potential environmental and social risks to determine an entity ’ s capacity to operate successfully .
The World Bank considers governance as a crucial element within the ESG framework . ESG factors are used to assess the sustainability and ethical impact of an investment in a company or project .
In terms of governance , the World Bank emphasises good governance practices as essential for sustainable development . This includes transparent and accountable decision-making , effective institutions , rule of law , and the protection of human rights . The World Bank recognises that sound governance is vital for attracting investment , fostering economic growth , and achieving positive social and environmental outcomes .
The World Bank has various initiatives and programmes that promote good governance practices globally . These efforts aim to strengthen institutions , enhance transparency , and combat corruption , all of which contribute to a more sustainable and equitable development .
It ' s important to note that ESG considerations have become increasingly important in the financial and investment sectors , and organisations like the World Bank play a role in encouraging responsible and sustainable practices in the global economy .
KEY ELEMENTS OF “ G ” IN ESG
With “ G ” or Governance under ESG refering to the governance practices a company employs to ensure ethical and responsible decision-making , some key aspects of governance under ESG are as follows :
● Board Structure and Independence : Companies with strong governance under ESG typically have a well-structured Board with a sufficient number of independent directors . This helps ensure that decisions are made in the best interest of the company and its stakeholders .
● Executive Compensation : ESG governance includes considerations about fair and transparent executive compensation . Companies that align executive pay with ESG performance indicators are seen as more responsible and sustainable .
● Shareholder Rights : Companies promoting good governance under ESG often prioritise shareholder rights , ensuring that shareholders have the ability to influence important decisions through voting mechanisms .
● Ethical Business Practices : Governance under ESG involves promoting ethical business practices , including anti-corruption measures , transparency , and accountability .
● Risk Management : Effective risk management is a crucial component of ESG governance . Companies need to identify and manage risks related to environmental , social , and governance issues to ensure long-term sustainability .
● Stakeholder Engagement : Companies with strong ESG governance actively engage with and consider the interests of various stakeholders , including employees , customers , and the community .
● Disclosure and Transparency : Transparency is key to ESG governance . Companies are expected to disclose relevant information
65