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Why Good Governance Works Companies with strong, diverse boards and transparent accounting are proven to do better. Victoria Harris, of Devon Funds, explains why the G in ESG matters.
If you missed the memo about ESG in investing, you’re one of very few investors who have. Environmental, social and governance (ESG) factors are being used more and more by investors to assess the sustainability and risk profile of companies. And a good G rating is fast becoming an indicator of solid and reliable companies with great returns. It’s worth thinking about, because ESG factors can dramatically affect a company’s financial performance and shareholder value, either in a positive or negative way. What is the ‘G’ in ESG? G stands for governance. Governance falls into ESG investing as the decisions and changes made to help create a ‘better’ company. This could be through the ethics of its board members, its diversity standards, the company culture, or the sustainability of its day-to-day operations. Governance covers pretty much everything about a company – a broad range of corporate activities including its board and management, as well as a company’s policies, standards, information disclosure, auditing and compliance. Yes, everything! For example, investors want to know that a company’s accounting is accurate and transparent, and that its business practices are ethical. WI NTE R 2 0 2 2 | I N F O R M E D I NVESTO R 7 8
