I am Master of the Worshipful Company of Chartered Secretaries and Administrators, which is the livery company for governance professionals. For every organisation in every sector, and indeed for every individual, addressing the Environmental, Social, and Governance or ESG issues facing the world has become an imperative. It is no longer possible to ignore the negative impact the industrial and technological revolutions have had on the world in which we live. These issues, including climate change, must be, and are being, addressed, but are they being addressed as well as they can be, or are some organisations and individuals just paying lip service to the issues?
I note with interest that “Governance” tends to be treated as the poor relation of “Environmental” and “Social”. It can be perceived as being something legalistic and perhaps mechanistic and involves complying with Codes or regulatory requirements. This misses the point and is inconsistent with what governance professionals would deem good governance.
The best metaphor I can think of is to imagine ESG as a body with Environmental as the lungs and Social as the heart. Governance is the blood; the lungs and heart depend upon it, and it helps them achieve their goals by ensuring they can do what they need to do. Good governance, like blood in the body, pumps around an organisation making sure that decisions are made having taken account of all the factors it holds dear. You will therefore not be surprised to know that I believe the best Governance frameworks reflect their organisation’s values, which might be such things as integrity, openness, putting customers first, and excellence. Surely ESG and, in particular climate action, should now be a fundamental priority and concern for every company which espouses such values.
The Governance framework should ensure that the organisation’s values are reflected in its decision-making processes from the board right down to the most junior level. Good governance is therefore a consequence of the right values consistently applied and adhered to throughout the organisation. Governance codes and regulatory confirmations should be external validation of good governance and not frameworks in themselves.
Organisational values come, of course, from the Chief Executive and the board as company values, like company culture, are top down – the “tone from the top”. This means that the most senior people must set the example for those reporting to them and ensure through the appraisal process that they have indeed embraced the Company values in all they do. This is the challenge, as when the going gets tough there may be a temptation to “bend” the values and therefore fall short of governance excellence. The best organisations recognise that they cannot afford to do this and the boards ensure that there is a Governance framework that is robust and governance professionals to ensure it remains so.
The TCFD (Task force on Climate-related Financial Disclosures) framework is one against that many companies now must report. There are four core elements, or pillars, of this framework – the first one mentioned is the organisation’s governance around climate-related risks and opportunities, followed by strategy, risk management and metrics and targets. For organisations to tackle climate change and move to net zero there will be a need to think and act differently. There will be some exciting opportunities to exploit but also risks and challenges to address. It will take commitment and hard work to make the changes necessary. This imperative and oversight will need to come from the board but will require implementation and action throughout the organisation. I have no hesitation therefore in concluding that organisations with the right Governance framework and strong embedded values will be more effective in achieving their climate action targets and doing their bit to ensure a better future for us all.
James de Sausmarez, Master of WCCSA