The G Spot
By: Bedford Row Capital
Tags: Esg, Governance, Sustainable Finance

In the rarefied atmosphere of ESG most discussion and activity are focused on the E — the Environment: global warming and carbon emission reduction. Environment, as a concept, is actually much broader than carbon emissions reduction and we hear very little about water security or oceanic diversity. In similar vein, we don’t hear about a great deal of emphasis, in ESG discussions or actions, about the S — Society: yes, we hear a bit about gender equality, (anti) child labour and poverty alleviation but, again, Society is a much broader topic for consideration and action if the whole ESG enterprise is to gain traction.

What we hear very little about, however, is the G in ESG — Governance. It is as if there is not much to say about Governance, that it is somebody else’s responsibility or that it is such a boring and two-dimensional topic that to put too much emphasis on it will risk boring people and turning then off ESG more broadly.

It is my contention, however, that the Governance, the G in ESG, is not only absolutely fundamental to the ESG movement, to achieving the short- and long-term goals of the ESG movement; G is the key to the whole ESG enterprise. Without the G, there is no ESG.

What do we mean when we talk about Governance? For me the reductionist view of Governance is when it is seen solely or predominantly as central to a company achieving its objectives whilst maintaining legal and ethical standing at the same time as financial probity: what some in the world of finance call the four Ps — People, Purpose, Process and Performance. This is, perhaps, the more boring perspective.

Governance is, in reality, so much more than this and so much more important than this. Governance includes the regulatory structures (and strictures) put in place by governments and international bodies to control businesses. The best we can say about this, in ESG terms, is that currently it is still ‘Under Development’. Yes, it is about the manner in which a company goes about doing its business — things we may describe as internal, but Governance is also about the strategic direction of the company, the philosophy of the company and the legacy of the company — things we may describe as the company’s place in the world. Being clear about this is absolutely central to the ESG mission. Governance is also about making sure that everything lines up, is cognizant of and is acting upon the rules of the game — not just in an active way but in a proactive manner (even drug cartels do this, although not particularly good examples of ESG champions!). Mention of drug cartels, however, leads one into thinking about those things that are currently missing from any debate about governance — not the least of which is crime. Whilst one hears quite a bit about cyber-crime, the ESG debate is almost silent on the broader topic of crime. We hear very little (almost nothing) about corruption (in politics or corporations), the patently illegal actions and activities of politicians and corporations (as well as large and small businesses) and the obviously illegal activities of ‘organised crime’. I defy anyone who claims that crime is boring, but unless we get to grips with the fulness of the concept of Governance, we put the whole ESG enterprise at risk. Governance is trendy.

Head of Social Policy at Bedford Row Capital Plc

Professor Kevin Haines: kevin.haines@bedfordrowcapital.com