Environmental, social, and governance (ESG) considerations are seldom out of the news. Organizations of all types have developed or are developing programs and plans to address ESG. The issues are wide-ranging, complex, and intertwined. Company boards should take a firm leadership position on the matter, putting in place clear governance strategies and strong processes or frameworks to support them.

Eurasia Group was pleased to work with international law firm Reed Smith on this report. Its objective is to help organizations manage the many current ESG issues and prepare for the new governance structures required to keep abreast of ever-changing environmental and social trends.

Authors: Claude Brown Shari Friedman, Diana Fox Carney

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Whether they are viewed as positive or negative, ESG considerations are seldom out of the news these days. Now familiar corporate concerns (such as climate change, gender equality, and workforce diversity) are being supplemented by newer ones such as biodiversity, water use, plastics management, and financial inclusion. Firms’ positioning on gender rights, reproductive rights, work-from-home, the war in Ukraine, and other issues that might previously have been deemed “political” rather than corporate entails a new type of decision-making. In such an environment, the most important component of the ESG troika is governance (G). E and S create both risks and opportunities for companies (and those that invest in or work for them), while G issues get to the heart of how opportunities are identified and risks are managed.

There are various schemes aimed at characterizing and assessing (good) governance—in general and in the rapidly changing environmental and social space—but there is not yet a universally accepted standard. There is also an important divergence emerging between what might be characterized as ratings- or compliance-oriented good governance and governance that materially helps with risk management and value creation. Such governance requires new vigilance, new skills, and a very adaptive approach to an evolving corporate and natural environment.

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