When talking about sustainability in companies, we need to address the transparency and accessibility of information. At a time when there is a lot of misinformation, responsibility is needed. This is why understanding what Governance is and what the “G” of ESG comprises is so important for organizations that are innovating.
Governance is a way of ensuring that all parties involved – stakeholders – are included in the company’s strategies, such as employees, managers, investors, suppliers, customers and the community.
The first code of good Corporate Governance practices emerged in 1992 in England, with the Cadbury Report , which encouraged greater involvement and communication from the company’s stakeholders, thus helping to initiate a series of transparency practices in organizations.
WHAT IS INCLUDED IN THE “G” OF ESG
When we talk about ESG, we are talking about how the company presents its sustainability strategies, aligned with the SDGs, the Global Compact and the 2030 Agenda, to its investors (in the case of publicly traded companies).
Corporate Governance, aligned with ESG, is an excellent tool for companies to gain visibility and authority in their market, retain talent and be relevant to consumers, thus standing out in the financial market.
This entire strategy, according to the IBGC (Brazilian Institute of Corporate Governance), is based on four principles:
Transparency: providing stakeholders with relevant information beyond that provided for in laws and regulations, which include not only economic performance, but also all actions that add value to the company.
Equity: giving access to the same opportunities to all interested parties, taking into account the group they belong to, eliminating aspects of vulnerability and treating everyone fairly.
Accountability: accountability in a clear, accessible, objective manner, meeting different degrees of understanding, with responsibility and transparency.
Corporate Responsibility: taking care to reduce the negative impacts of the business and increase the positive ones. For this there are several fronts of action, such as economic, social, environmental, etc.
Although there is no rule or determination of how these principles should be applied, since each organization will have its particularities – such as: area of activity, points of interest aligned with the corporate culture, limits and strengths -, the Code of Conduct for Corporate Governance – Listed Companies to help companies implement their strategies.
The code was developed by the Interagentes Working Group (GT Interagentes), coordinated by the IBGC, and formed by eleven important entities linked to the capital market.
There are 55 codes divided into:
- Principles: establishing behaviors reflected in the Code.
- Fundamentals: which support and explain the Principles.
- Recommended Practices: the rules of conduct resulting from the Principles.
The principles and the Code of Conduct serve as guidelines for the development of the company’s Corporate Governance.
CORPORATE GOVERNANCE IN PRACTICE
As stated above, each company can work on Corporate Governance principles according to its reality, however, there is an ethics where we must transparently communicate which actions were or were not carried out.
For this, there is the “Apply or explain” model, understanding that the application of the principles is more flexible, a path of learning and evolution, without distancing companies from the principles of sustainable development.
In the “Apply or explain” model, the principles that are left out of the Governance strategies must be justified to the stakeholders, while those that were applied will be reported in greater depth.
APPLICABILITY IN THE FINANCIAL MARKET
According to the IBGC, in the fifth edition of the Practice or Explain study: Quantitative Analysis of the Reports of Brazilian Public Companies (2022), governance practices in public companies increased, however, there are still bottlenecks to be overcome.
The companies that stood out were those included in the Novo Mercado, a B3 program that establishes a “standard of transparency and governance required by investors for new IPOs”.
Bearing in mind that more and more investors are looking for companies aligned with sustainability and ESG practices, it is essential that more and more companies adopt transparency as a tool for dialogue and market evolution.
One of the points raised within the study carried out by the IBGC is precisely the questioning of the intentions of the companies that are adopting the “Apply and Explain” model within their Governance strategy. If it is a movement of the evolution of companies or just a requirement of the market.
Therefore, it is of paramount importance that investors make deeper analyzes of the company’s reports and history, in order to understand how governance strategies appear in the business routine.
It is also interesting to raise this point of awareness of organizations, where strategies must go far beyond visibility, but rather reflect on how to evolve their actions and impacts.
With Governance, we close the cycle of deepening each aspect of ESG. To understand the complete concept also check out:
