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ESG (Environmental, Social, and Governance) – Governance Factors – Thematic Research

Corporate governance has come to the fore as directors and executives recognize that they are responsible not just to shareholders, as in the past, but to a wide range of stakeholders.

Customers, partners, employees, and communities must be considered. Regulators and non-governmental organizations command attention. Few, if any, directors or executives would argue that they have no responsibility for the environment, especially as the effects of climate change grow more evident and more dire.

Scope

This report provides an overview of governance, which is central to GlobalData's environmental, social, and governance (ESG) framework.

Our ESG framework helps CEOs identify potential risks and implement mitigating actions that can improve their company’s ESG performance.

It sets out the reasons why companies must take governance seriously, looks at how corporate governance can go wrong, and highlights practical steps that companies can take to improve governance.

Taking each aspect of governance in turn, this report provides examples of companies that are leading by example, and companies that have room to improve.

This report describes how corporate governance has shifted as disclosure requirements have given stakeholders greater access to information. Financial disclosure reveals whether executive pay structures are equitable, for example, while other types of reporting make it harder for companies to evade responsibility for pollution and unsafe or unjust workplace practices.

The report also provides numerous positive and negative examples that illustrate how corporate governance is inextricably tied to results.

Key Highlights

The “shareholders first” view of corporate management drives a short-term view of governance similar to short-term views of financial markets and performance. As Andrew Johnston, professor of corporate governance at the University of Sheffield, wrote in 2020, too great an emphasis on near-term financial results drives short-term behaviors. These include stock buybacks, excessive dividends, failure to invest in productive capabilities, and inattention to the corporation’s long-term sustainability.

The result, Johnston wrote, can be a “tragedy of the horizon” no less consequential than the “tragedy of the commons,” a legal and economic concept in which individuals acting out of unregulated individual self-interest produce a result detrimental to all. In the “commons” example, shepherds lacking a shared social structure allow their sheep to eat all the grass. In Johnston’s “horizon” example, companies may soar in the short term but fail in the long run.

Reasons to buy

In 2021, ESG should be the most important theme discussed in corporate boardrooms worldwide. Over the coming decade, it will transform the way that business is conducted. Customers, voters, and politicians will demand greater action is taken on environmental, social, and governance issues. Companies that take ESG seriously now will be better placed to succeed in the future.

This report will help you understand what governance is in the context of ESG, why it is important, and what your business can do to become a leader in corporate governance.

Companies mentioned

BMW

BlackRock

Chipotle Mexican Grill

BP

L'Oreal

Heineken

Wirecard

Volkswagen

UPM-Kymmene

Lockheed Martin

Coca-Cola

Gazprom

Glovo

Geico

Carillion

AB InBev

Airbus

Odebrecht

Carrefour

Allianz

Highways England

Purdue Pharmaceuticals

Turing Pharmaceuticals

Unilever

Smurfit Kappa

International Paper

Pro-Gest

Shell

Amazon

Table of Contents

Executive summary

GlobalData's ESG framework

Why companies must take governance seriously

The four main factors determining good governance

Timeline

Glossary

Further reading

Thematic methodology

    Pricing

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