The often underestimated third pillar of sustainable business should be an important part of small and medium-sized businesses as well. How to do it without unnecessary costs?
Governance (G) is an often-overlooked pillar of ESG standards. While environmental (E) and social (S) aspects are generally known, responsible corporate governance remains unclear, especially for smaller companies. Entrepreneurs often underestimate this factor because it is not sufficiently understandable to them. Governance, or responsible corporate governance, creates a solid foundation on which a sustainable and long-term successful business stands. What exactly does governance mean, why is its implementation crucial for companies of all sizes, and how can you deal with it easily?
Governance as the basis of ESG
Governance, or corporate governance, is a complex system of rules and processes that determine how a company makes decisions, manages risks, and communicates with external partners.
It focuses on 4 key areas:
Transparency: Disclosure of information about financing, ownership structure and decision-making processes.
Ethics and Responsibility: Adherence to ethical principles and values. Decisions should be in line with the long-term goals of the company and the interests of its stakeholders.
Risk management: A company must be able to identify and manage risks associated with its business in a timely manner. These include those that threaten it itself but also risks that may negatively affect its surroundings (for example, environmental pollution or impact on the local community).
Diversity and inclusion: Promoting equality and diversity in management and governance structures and a non-discriminatory approach in relation to employees or management.
Why is properly set governance important?
First of all, it helps build trust and reputation. Companies with transparent and ethical management processes gain the trust of customers, investors and business partners. Nowadays, there is an increasing emphasis on sustainability. Trust is one of the most valuable assets of a company.
Governance helps companies prevent legal, financial and reputational problems. Thanks to properly set rules and control mechanisms, a company can better manage risks. Clear processes and regular audits allow potential problems to be identified before they become critical.
Companies that emphasize good governance are better prepared to cope with changes in the regulatory environment and market conditions. Governance ensures that business is not only profitable, but also sustainable and responsible.
European regulation
Within the European Union, ESG is firmly embedded in legislation. A key regulation is the Corporate Sustainability Reporting Directive (CSRD), which requires larger companies to disclose information on their ESG activities. This directive is complemented by the European Sustainability Reporting Standards (ESRS), which provide a framework for transparent and consistent reporting.
ESRS set requirements for what information companies must disclose in the area of ESG. In governance, the standards address topics such as ethical behavior, anti-corruption measures, data protection and risk management. Although it may seem that such systems of internal regulations only concern large corporations, this is not the case. Even in a small company, it is possible to create a simple and clear system of rules in key areas.
Change without major investments
Governance is an area that can be adjusted relatively easily and quickly. Changes can be made almost immediately and without major costs. If you want to start implementing governance in your company, you don’t have to immediately implement complex systems. Start with simple steps, such as creating a code of ethics, introducing basic control mechanisms and dividing responsibility. Regular and open communication with partners and employees is also important.
In an environment where customers and investors increasingly favor responsible businesses, good governance can be a critical success factor. Transparent management and ethical behavior strengthen a company’s reputation and increase its chances of winning investments or customers.
We would be happy to help you set up an ESG strategy tailored to your business goals, implement an effective data recording system and get the most out of ESG. Don’t hesitate to contact us!
