ESG Risks: Governance

Strong company governance structures drive value-creation

Governance covers a range of matters including tax strategy, corporate risk management, executive compensation, donations and political lobbying, corruption and disclosure.

For example, investors want to know that a company’s:

  • Accounting records are accurate, complete and transparent.
  • Business practices are ethical.
  • Policies encourage stakeholder engagement.
  • Board of directors are accountable, diverse and independent.

Corporate governance concerns make headlines on a regular basis. As an example, a well known vehicle manufacturer provided a vivid example of the implications and negative financial and reputational consequences of poor governance in 2015.

Gender diversity and gender equity represent another high-profile governance factor, with many institutional shareholders demanding better representation of women and minorities on corporate boards, and in the executive ranks, equal compensation, and access to career promotion for women.

“Michigan reaches $600 million settlement for victims of Flint water crisis It comes six years after lead from pipes leaked into residents’ drinking water.”
(ABC News, August 20, 2020)

“Volkswagen said its diesel cheating scandal has cost it 31.3 billion euros ($34.69 bln) in fines and settlements, and the German carmaker expects cash outflows to continue until 2021.” (Reuters, March 17, 2020)

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