Governance: Putting the G in ESG

We noted in last year’s report that a focus on the management and supervision of culture and conduct risk issues had begun to overlap with an increased focus on environmental, social and governance (ESG) considerations among investors. This stands to reason: many of the factors regarding corporate culture and ESG performance that matter to investors are similar, if not the same, as those in which regulators take interest when considering a firm’s non- financial risk management and operational resilience. 

There is a strong case to be made that governance interests will receive more attention as we move past the COVID-crisis. “Whilst the focus on sustainability and ESG factors is good, we think that in addition it would be worth considering whether more traditional elements of corporate governance deserve attention,” PwC opined in an October 2020 letter to the European Commissioner for Justice. “In particular, the importance of whether corporate transparency and corporate governance in relation to business continuity and the sustainability of the business model could be enhanced.”1 Governance concerns outstrip environmental and social factors for asset managers, Russell Investments reports in its ‘2020 annual ESG survey: turning up the volume’, which canvassed 400 asset managers globally. Of those surveyed, 82% said governance led their ESG-related decisions in 2020, while 13% of respondents said environmental and 5% said social.”2