ESG Explained: What’s the “G” in ESG?

The “G” in Environmental, Social, and Corporate Governance (ESG) is the final component necessary for achieving a sustainable business model. Corporate governance provides a transparent management structure for companies to develop and advance their social, environmental, and economic interests. With strong governance practices in place, companies can position themselves for long-term development and success.

Corporate governance is most commonly described via the four P’s: people, purpose, process, and performance. These principles assert that business always starts with people – the employees, stakeholders, board members, and the company’s consumers, all of whom are essential for achieving the greater purpose of the company. Governance is the process by which these people work toward the company’s purpose. Finally, performance metrics reveal how successful a company’s governance practices are in relation to their established goals.

The successful integration of governance practices into your company’s business model helps ensure that all business decisions and activities align with your company’s values and goals. Here, we break down several core components of the Corporate Governance pillar.

Business Ethics

Business ethics extends beyond solely complying with laws and regulations; it involves considering how a company’s practices reinforce its values, culture, and mission statement. A strong focus on business ethics helps companies navigate decision-making in situations that fall outside the scope of compliance. Business ethics represents a key area where we see all three pillars of ESG overlap. Ethical decision-making takes into account the positive and negative effects of decisions on the company, employees, stakeholders, society, and the environment.

Transparency is a crucial aspect of business ethics. Companies must hold themselves accountable for upholding their values to foster a sense of trust with their customers and the greater community. Business ethics not only contributes to the overall success and performance of a company, but it also allows companies to highlight their ethical practices as a means of attracting clients and potential employees and differentiating themselves from competitors.

Risk Management

Risk management is an essential component of good governance practices. It is the responsibility of a company’s executive team and board of directors to assess the risks and opportunities associated with all the company’s actions and decisions. Proactive risk management practices include conducting due diligence and establishing robust internal controls, which ensures the protection and security of company systems. Capaccio’s auditing methods can guide clients in the process of risk identification and mitigation by collaborating with company leaders to establish strong data integrity and ESG practices. Risk management helps strengthen a company’s operations and practices while reducing exposure to financial risks.

Governance practices also include the oversight of strategic risks, such as competitive and reputational risks, which require both qualitative and qualitative risk assessment. Risk management is a key component of overall business strategy and needs to be integrated into every facet of the company.

Supply Chain Management

Corporate governance practices also encompass establishing frameworks for supply chain management and ensuring compliance with the company’s core values throughout the entire value chain. Governance strategies aim to enhance supply chain resilience by considering factors such as regionalization. Regionalization involves decreasing the physical length of supply chains to improve operational efficiency and reduce costs. This approach helps companies pinpoint core suppliers and develop stronger relationships built upon shared values. Once again, transparency plays a pivotal role by allowing companies to showcase the steps taken to ensure their supply chain practices align with their social and environmental commitments.

Effective data collection and management are essential for supply chain governance. Capaccio can assist clients in collecting data across the entire value chain, and Capaccio’s EHS-Dashboard™ centralizes data to streamline decision-making. Companies must work collaboratively with their suppliers and communicate ESG targets and metrics.

Materials Sourcing & Efficiency

The governance pillar of ESG includes overseeing the entire lifecycle of materials, from procurement to their use and efficiency. Material sourcing should consider the availability of the resource and the impact of consuming these raw materials, including factors like waste generation, energy consumption, and water usage. The idea behind material efficiency is to maximize the use of materials throughout their lifecycle while minimizing waste generation across the supply chain. While this certainly intersects with the environmental pillar of ESG, material sourcing and efficiency is also a core component of corporate governance because the sustainability of materials is directly linked to the long-term success and profitability of companies. Proper corporate governance practices ensure that decisions regarding material sourcing and usage align with the company’s values and mission statement.

Next Steps

Capaccio can help your company establish concrete corporate ESG practices. We begin by conducting a materiality assessment, which helps evaluate the effectiveness of your current ESG practices in achieving your company’s mission. The materiality assessment takes into consideration all ESG factors including several governance factors, which can include those discussed above: business ethics, risk management, supply chain management, and materials sourcing & efficiency. This assessment is the first step in crafting ESG targets and metrics tailored to your company and industry.

Capaccio’s EHS-Dashboard™ offers a one-stop comprehensive solution for data management and tracks your progress toward ESG targets. To learn more about how the EHS-Dashboard™ is an invaluable resource for developing and implementing governance practices, schedule a demo. With more than thirty years of experience, Capaccio is dedicated to guiding your company on best practices for integrating an ESG framework into your business model, ensuring a more sustainable future.