The A-Z of ESG: Governance
COP26 update:
As the second week commences, we look at the latest COP news.
- A study shows that just ten publishers, from Russia and the US, are responsible for nearly 70% of climate change misinformation on Facebook. 1
- Greta Thunberg says COP26 is a “failure” and a “PR exercise.” 2
- Scientists reported that carbon dioxide emissions of the richest 1% of humanity are on track to be 30 times greater than the level compatible with keeping global heating below 1.5C. 3
- Young people demand action, with the views of over 40,000 young climate leaders presented to delegates. 4
- 45 governments pledged urgent action and investment to protect nature and shift to more sustainable ways of farming. 5
So far, we’ve covered the environmental and social aspects of ESG. Now, last but not least, is governance.
Governance has long been a focus for asset managers because it examines the alignment of shareholder interests with management decisions, which is a fundamental aspect of corporate analysis. Afterall, a company’s leadership and the ability for shareholders to effect change is crucial – and enables progressive thinking and the other aspects of ESG to be enacted.
Governance examines the rules and procedures in place, and therefore allows investors to screen for appropriate practices. On a very basic level, it ensures there are no illegal aspects to the business. There is evidence to suggest that the ‘G’ aspect of ESG is linked with better corporate returns.6
In short, if a company is run well, then it is more likely to be successful.
Key questions include:
Is it run in a way that is fair, free from corruption, and transparent?
What is the risk and crisis management process?
How are shareholders listened to?
Is diversity represented at management level?
Governance criteria
Key factors include:
- Executive pay
- Audits and internal controls
- Shareholder rights
- Board and management quality
- Financial reporting
- Bribery and corruption
- Stakeholder governance
Sustainable investing
At Holden & Partners, we think ESG considerations can be a useful starting point for responsible investing, but we want to go much further. We want transformative change and measurable sustainability impact. If you’d like to know more about the different levels of ‘greenness’ in investing, and you’re feeling inspired, then don’t hesitate to get in touch with the Holden & Partners expert team.
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2 COP26: Greta Thunberg tells protesters climate summit is a failure and PR exercise – BBC News
3 What happened at Cop26 – day five at a glance | Cop26 | The Guardian
6 Exploring the G in ESG: Governance in Greater Detail – Part I | S&P Global (spglobal.com)