By Martin WAANA-ANG
In today’s rapidly evolving business landscape, Environmental, Social, and Governance (ESG) factors have become critical benchmarks for investors, stakeholders and companies alike, and thus, evolving from being optional to essential compotent of good business practices. ESG serves as a comprehensive framework for assessing corporate behavior, risk management, and long-term sustainability.
Environmental (E): Beyond compliance to leadership
The environmental pillar focuses on a company’s impact on the planet and vice versa. From carbon footprints to waste management, businesses must adopt sustainable practices to mitigate risks like climate change and resource depletion. Mitigating these risks requires that companies become accountable and transparent.
Companies should measure, report, and reduce their environmental impacts using credible evidence-based frameworks. Forward-thinking businesses must also prepare for regulatory changes, reduce waste and embrace digital solutions to minimise their ecological footprint.
These measures are necessary to stay ahead of regulatory changes to mitigate risks, prevent reputational damage and safeguard long-term earnings.
Social (S): Accountability in people-centered practices
The social pillar emphasises how companies treat people. This ecompasses employees, customers, suppliers and communities. With rising concerns around human rights violations, modern slavery and human trafficking, businesses must ensure strong supply chain management and foster meaningful relationships with all stakeholders.
Transparent reporting and going beyond legal requirements can enhance credibility, build trust, and create long-term value for investors and communities.
Governance (G): The backbone of ESG success
Corporate governance is the system by which companies are directed and controlled. The board of directors is responsible for the governance of their company. The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure (eg accountable and transparent) is in place.
The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship. Governance is the backbone of ESG. Good governance ensures that the E and S pillars are effectively integrated into business operations.
Key governance practices include:
- Board oversight on human rights and sustainability policies
- Diverse recruitment strategies at all levels
- ESG-focused risk assessments to mitigate environmental and social impacts
- Transparency in reporting, ensuring data reliability and integrity
- Company-wide education and training on sustainability and ethical business practices
Directors’ liability for ESG default
Directors of corporates could also see themselves potentially personally liable and facing legal action for failing to take proper account of ESG considerations, as seen in the derivative action against Shell’s directors.
In Ghana, for example, the Companies Act, 2019 (Act 992), under section 190(2), imposes a duty on directors to act in the best interest of the company in a manner that a faithful, diligent and careful director would act, and in so-doing, to have regard to:
- the likely consequence of any decision in the long term,
- the impact of the operations of the company on the community and the environment, and
- the desirability of the company maintaining a reputation for high standards of business conduct.
This imposes a duty on directors to ensure that decisions and strategies adopted for the management of the company does not negatively impact the environment or exposes the company to risks of reputational damage.
It must be noted that director’s can personally be sued by the Company or a member for failing to act in the best interest of the company.
Directors also stand the risk of criminal prosecution especially where they make false or misleading communications in an attempt to overstate the sustainability aspect of the company’s products.
This is called greenwashing. Greenwashing refers to the act of misleading third parties by overstating the positive environmental impact of a product, service, brand, or business.
Greenwashing represents a growing risk for organisations across sectors with the increasing disclosure of sustainability-related information, either as part of reporting obligations or volunteered in response to stakeholder interest in corporate environmental credentials.
Information may be disclosed in a variety of formats; for example, in company reports, on a website, in advertising materials, by way of a net zero transition plan, or as part of B2B transactions.
Under section 344 of the Companies Act, (Act 992), a person, who by misrepresentation, false or deceptive publication induces or seek to induce another person to invest in a company or to enter into an agreement either for the acquisition, disposition of or underwriting securities or depositing money commits an offence.
The directors are also criminally liable if they dishonestly conceal material facts about the company’s negative practices and thereby induces or attempts to induce another person to invest or enter into a transaction with the company.
The Company may also risk being wound up if the Attorney General is of the view that the activities of the company are inimical to the public interest.
Practical steps to build and implement an effective ESG strategy
Organisations must take actionable steps to integrate these principles into their operations including:
- Conduct a materiality assessment
Organisations should start by identifying key ESG priorities through a materiality assessment. Engage a broad range of stakeholders—employees, investors, and external parties—to understand what matters most. Use surveys to gather insights across all three ESG pillars and set the foundation for your strategy.
- Define objectives and goals
Use the results of your materiality assessment to determine which ESG areas are most critical for your organisation and stakeholders. This will help you focus on what needs to be achieved and align your efforts with stakeholder expectations.
- Perform a gap analysis
Assess your current ESG efforts across operations and supply chains. Identify what’s working, what’s not, and where gaps exist. This analysis will help prioritise areas for improvement and ensure a comprehensive approach to ESG integration.
- Develop an ESG roadmap
Create a clear, actionable roadmap based on your materiality assessment and gap analysis. This roadmap should outline steps to address priority areas, comply with legislation, and align with company policies and codes of conduct. It will also serve as a valuable tool for communicating progress to investors and stakeholders.
- Set KPIs and measure progress
Establish Key Performance Indicators (KPIs) to track your ESG progress. Regularly review these metrics to ensure accountability and continuous improvement. The European Commission’s guidelines on ESG KPIs can be a helpful reference.
- Invest in training and awareness
Educate employees at all levels about ESG issues and their impacts. Training sessions, led by legal counsel or ESG experts, can help embed ESG principles into company culture and ensure compliance with legal requirements.
>>>the writer is a dedicated and brilliant legal professional committed to delivering top-tier legal counsel that drives economic growth, promotes social justice and enhances business growth in Ghana and across the region. Martin’s focus areas in practice are complex commercial disputes, corporate commercial transactions and advisory, digital trade & FinTech Law, intellectual property law, data privacy & security, employment law, energy & natural resource law, financial markets and commercial arbitration.
