While researching, however, I realised that the Environmental aspects are very well covered and everyone is aware of them. The Social is a bit more complex as it is so broad and therefore a bit more difficult for people to wrap their heads around. It’s easy, for example, to think about community involvement or charitable deeds, but much more difficult to include voting patterns in that mix (although some argue it belongs there!). The Governance is the element that caught my attention most – Governance, although not as immediately appealing as the other two, is, I believe, where our focus should now be moving.
Over the course of my research I discovered some really interesting facts. Let me share them with you:
Good governance, ultimately, is about money. There are at least 3000 investors signed up to the Principles of Responsible Investment (PRI). In 2015, US$ 60 billion in assets under management were managed by PRI signatories. That amounted to half of the total global institutional base at that time. That’s a lot of governance-focused investing!
In addition to PRI investment, ESG shows that companies are interested in the long-term growth and sustainability of the business, which creates “Firm value.” This is about a company’s ability to add future value capabilities, control risk and develop sustainably. All of these elements are vital to the future growth of any corporate body and therefore create “Firm Value.”
Negative media coverage of corporate ESG increases a company’s credit risk and creates financial risk for the future. Governance has a strong role to play in risk prevention. Good governance is simply good business.
Role of women
Good governance also means focusing on equality and diversity at all levels. When more women are involved at Board of Director and senior management level, they drive more social responsibility. Social responsibility drives employee engagement and retention.
Role of Employees
And, here’s an interesting fact for you: companies with liberal employees are more engaged in social responsibility activities than companies with conservative employees. There’s definitely more research to be done there!
Sources: Journal of Sustainable Finance & Investment, Journal of Corporate Finance and MDPI open-access publishing.