To start with, sustainability governance looks at the systems, processes and practices that organizations use to manage and oversee their social, environmental and economic impacts to ensure long-term sustainability.
Sustainability governance aims at promoting a good life for the present and the generation yet unborn. A business that aims at sustainability must have a legal existence or operate within a legal framework of rules and regulations.
Legal existence means that a business must be registered with relevant authorities. Thus, registering a business helps to identify its main purpose, the industry in which it operates and tax obligations.
Indeed, legal existence helps an organization to align its values, products or services with the underlying principles of environmental, social and governance (ESG) since they are the building blocks and pillars that hold them firmly into the future for all generations.
In effect, existing as a legal entity helps a company to implement its sustainability strategies across the business by following a defined structure of rules and regulations.
It also enables businesses to strengthen their relations with external stakeholders and ensure overall accountability. That said, this article further highlights the key underpinning variables or drivers that define sustainability governance.
Responsible Leadership
Top leadership’s commitment to sustainability goals and objectives is key to achieve positive outcomes. Indeed, responsible leadership requires a business leader to ensure that their decisions are based on the long-term sustainability of society rather than satisfying their immediate priorities at the expense of future gains.
By extension, being responsible means that a business leader must consider the societal and moral implications of their decisions. As part of their strategies for achieving financial objectives, it is also imperative for businesses to set the tone from top leadership and involve line managers to practise responsible leadership within their units of operations.
In line with strategies, a business leader needs to implement key metrics that will help them to measure the positive impact of responsible decisions. Therefore, responsible leadership requires business leaders to set their key metrics or deliverables by considering those peculiarities.
Key decision-makers, therefore, need to equip themselves with the requisite knowledge and the skills to enable them to develop their environmental, social and governance (ESG) priorities with effective monitoring and evaluations tools. In addition, a responsible business leader should be able to deliver organisational performance, while acting sustainably without compromising the underlying principles of environmental, social and governance (ESG).
Governance Structure
Governance structure or corporate governance defines the system of rules within which your business should operate. It further looks at the practices and principles that govern an industry and how it should be controlled in its relationship with key stakeholders including customers, employees, suppliers, financiers, government and the community.
A governance structure must have clear roles, decision-making processes for sustainability. Since businesses operate in different sectors of the economy, their practices and depth of exposure to environmental, social and governance (ESG) risks are equally not the same.
As a result, one approach (one-size-fits-all) of corporate governance many not be right for all businesses. Accordingly, business leaders must have their corporate governance blueprints developed by considering their specific industry dynamics and circumstances.
This will help them set their priorities and the responsibilities of stakeholders towards achieving their sustainability goals. Irrespective of any differences in form or substance that could be due to business type, an effective corporate governance structures must exist so that in making sustainability decisions, businesses must consider all stakeholders’ interests.
Internal Controls
Sustainability Governance also requires companies to integrate effective internal controls into their business processes to provide reasonable assurance to all stakeholders that the company is operating within the ESG framework. Thus, businesses need to have policies that define their Environmental, Social and Governance objectives, level of risks, and then look at both the design and the operational effectiveness of their systems to prevent, detect and address emerging risks.
The rationale behind broadening the scope of internal controls to cater for ESG principles is to ensure companies operate within legal and ethical requirements so that they do not suffer adverse consequences of emerging risks. Companies that have deficiencies in respect of integrating the ESG principles into their internal controls need to do so or seek professional advice. This way, they will be more prepared to fit into the sustainability agenda.
Accountability
Sustainability Governance requires that companies must develop systems and processes to enable them to monitor and evaluate the environmental and social risks of their operations, products or services. The sustainability auditing or accountability process assesses companies’ preparedness and identify gaps regarding how they collect incident reports and manage potential environmental and social risks in their relationship with their stakeholders. The driving force behind sustainability auditing is to identify potential or emerging risks so they can be controlled proactively.
Sustainability auditing standards and reporting are not cast in stone since complexities in companies’ risk exposures are different but the ISO 26000 guidelines demand from companies to report on their ESG principles with emphasis on the risks and impacts of their Corporate Social Responsibilities (CSR) activities.
Indeed, Environmental, Social and Governance issues continue to influence public discourse and very important to investors, consumers and companies alike. In all considerations, clear accountability mechanisms is imperative for sustainability performance and decision-making. Thus, it is important to provide regular sustainability reporting with accurate disclosure of performance and progress.
Sustainability governance has its associated challenges and opportunities to contend with. The prospects relate to integration, data and metrics as well as innovation and technology to drive sustainability performance and reduce environmental impacts.
Sustainability governance also improves operational efficiency through demonstrated practices in that regard. In closing, sustainability governance improves an organization’s reputation and brand value through demonstrated commitment.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
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