Governance

How Modern Governance Meets the ESG Imperative

The evaluation of companies on their performance as corporate citizens was already growing in importance before 2020. However, the COVID-19 pandemic has accelerated the critical shift from shareholder to stakeholder capitalism. As we continue to face a crisis that took hold rapidly across the globe, awareness of the other, deeper issues confronting humanity has grown in tandem. The climate crisis and systemic human inequality will be with us long after the COVID-19 recovery, and their long-term effects — though not so easily quantified as the tragic coronavirus death and infection rates — are greater.

This amplified awareness is asking challenging questions of boards and the organisations they serve. When the basis for judgement is far broader than shareholder value, what are corporations doing to create sustainable value for all stakeholders? How are they addressing issues such as diversity, environmental impact, support for vulnerable communities and prevention of illegal employment practices? How are they preparing to meet future crises?

The overriding question for boards is: in a world where environmental, social, and governance (ESG) factors dominate investor, regulator and consumer interest, how can they deliver effective oversight and robust challenge to the organisations they serve?

 

More Transparent, Frequent and Diverse Insights Through Modern Governance

There’s no denying that the pandemic transformed the way boards operate, shaking governance out of its traditional quarterly cadence and bringing boards closer to the business. More frequent virtual meetings and the adoption of digital tools and processes has shown that governance can be maintained in less-than-ideal circumstances without compromising on information security and efficiency.

It has also underlined the need for fast, accurate information flow to directors and the C-Suite — across a hugely diverse range of topics — providing the insight they need to make decisions against a rapidly changing backdrop.

This evolution is at the heart of modern governance, where leadership, board and operational practices become better-positioned to drive sustainable performance, engender investor confidence, engage stakeholders and create lasting impact. By combining technology, insights and processes, organisations can build the platform needed to achieve this.

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Diversity of Data and Perspectives

Organisations aiming to improve ESG performance must identify and monitor crucial metrics.

The World Economic Forum’s ESG metrics are an excellent place to start. Companies should begin benchmarking against them or, where they are not currently monitored, establishing a framework to capture and track data. This gives directors and the C-Suite an internal perspective and a more holistic view of how the organisation is performing and where gaps exist.

However, it is abundantly clear that organisations do not operate in a vacuum — in fact, the rise of ESG is an acknowledgement of that. Therefore, leaders also need access to external data and insights about the broader trends, issues and regulatory direction likely to impact the organisation. This gives context to the organisation’s internal data and gives boards a more diverse set of perspectives for long-term success, including seeing potential crises further in advance. Modern governance takes information wherever it exists, whether that is inside or outside a company, and ensures the board of directors and leadership team can ask the right questions and make the right decisions at the right time.

 

A Platform for Modern Governance

As a pioneer of modern governance, Diligent’s platform brings together disparate tools, data, integrations and processes into one secure place so board leaders can govern effectively at the ever-increasing pace of modern business. The platform is comprised of three solutions: board and leadership collaboration, operational governance and advanced governance analytics.

Together these tools deliver frequent, comprehensive information that helps directors to perform better and increase their knowledge and awareness of the company they serve and the environment it operates in. They allow boards to become fully digital, being securely accessible from any device, so they can embrace the transformation and reap the benefits of insight anywhere. And when governance is digitised from the top, it becomes easier to cascade adopting a digital approach to ESG measurement and monitoring down through the business.

 

Turning Governance To Competitive Advantage

As Black Rock CEO Larry Fink pointed out in his 2021 letter to CEOs, there is growing evidence that the already strong organisations in ESG performance and monitoring have navigated the COVID-19 crisis better than less ESG-aware counterparts. A fuller understanding of the fragile ecosystem around a business and the non-financial factors affecting value creation appears to allow companies to respond more effectively to disruption and uncertainty. Consequently, ESG performance must no longer be siloed and viewed independently of other measures of corporate success; it is intrinsic to sustainable value creation.

It follows that governance can become a source of competitive advantage. The Diligent global network — of more than 19,000 organisations and 700,000 leaders in over 90 countries — aims to achieve just that through technology, process, and information innovation.

Alongside this, programmes such as Diligent’s modern leadership initiative, for example, are focused on proactively addressing the lack of diversity among senior leaders by building a database of qualified director and C-Suite candidates from diverse backgrounds and connecting them to appointment opportunities worldwide. This will help organisations build the diverse boards that evidence shows are better custodians of long-term value creation.

 

Modern Governance for a Sustainable Future

In the much-changed post-COVID environment, stakeholder expectations of boards and senior leaders have grown and changed, as have those of the companies they serve. Adopting modern governance is an intelligent response to both the physical challenges of distributed ‘virtual’ directorship and the moral imperative to advance ESG awareness in the businesses and stay informed on diverse and fast-changing issues.

By implementing the right technology, processes and insights, boards are better positioned to serve their business and broader society, providing robust, informed oversight during difficult times.

 

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