The Cambridge Dictionary defines the term governance as the way in “which an organization is managed at the highest level, and the systems for doing this.” The roots of the term lie in the Greek verb, kubernaein (meaning to steer, which is what organizations are meant to do). Traditionally, governance is used in a sort of broader national context, as in governance of a country, a global body, etc. Over the years, governance began to represent public institutions, and management was the term embraced by the private sector.
But, off late, the word governance is also being used in conjunction with the corporate sector. With the ESG (Environment, Social, Governance) movement gaining traction, there is a greater emphasis on the governance aspect. We have already seen the impacts of ‘misgovernance’ in all the corporate scandals, like Satyam Computers, or the case of IL&FS, ICICI Bank, Kingfisher Airlines, Jet Airways, or even Punjab Maharashtra Co-operative Bank. All these scams are shining examples of the dangers of slipping on the governance aspect and why regulators, investors, and bourses have all become sensitive to such issues — little wonder then that the ‘G’ in ESG is gaining prominence.
To bring forth the governance aspect, Turkey-based Arguden Governance Academy, founded by a veteran in this space Dr. Yilmaz Arguden, has brought out a global study that maps the sustainability performance of corporations across the world. The uniqueness of this study is that it looks at sustainability from the governance lens, outlining how effectively companies have deployed global best practices in their boardrooms. Dubbed as a “Sustainability Governance Scorecard,” the report is intended to be a benchmark for companies to map their practices with the leaders in the respective space.
This study was a comprehensive effort, wherein companies that are renowned as sustainability leaders were chosen from seven countries like China, Germany, South Africa, India, the UK, the US, and Turkey. The Arguden Academy pored through the publicly available information gleaned from the corporate and sustainability reports, and corporate media release. The data collected was then collated on a framework that was presented as a benchmark of sorts. Thirty-three companies from India were part of this study, which included over 100 other companies.
The two primary conclusions of the Sustainability Governance Scorecard was:
- There is significant room for improvement in the effectiveness of execution and accountability of the sustainability programs of even the leading companies.
- There are extensive peer-to-peer learning opportunities based on goof practices share by the Global Sustainability Leaders on how they approach their sustainability efforts.
Recently Dr. Yilmaz Arguden, founder & chairman, ARGE Consulting; Kubra Koldemir, Sustainability Researcher, Arguden Governance Academy; Sara Cheng, Senior Director – Capital Markets Policy and Strategy, CFA Institute; Anirban Ghosh, Chief Sustainability Officer, Mahindra Group, deliberated on the various aspects of corporate governance at the NSE Board Room in Mumbai. The roundtable on ESG Disclosure Practices & Regulations was attended by some of India’s leading investors and fund managers.
Kickstarting the discussion, Dr. Arguden mapped the evolutionary spread of sustainability. “Sustainability is as old as humanity,” he declared. Subsequently, he presented the defining aspects of the report, reflecting how Indian companies fared in terms of corporate governance. Some of the pertinent issues that he raised in regards to India were how Indian companies were lacking in terms of introducing sustainability at the board level. None of the Indian companies had a defined Board Skill Matrix. Indian companies were also found lagging behind their global counterparts in terms of linking their corporate strategy to Sustainable Development Goals or SDG.
Sara Cheng spoke on the challenges of ESG integration across select markets in the Asia Pacific. She emphasized the point that “better governance is good for business.” According to Sara, Asia-Pacific accounted for 10% of Global ESG AUM, estimated to be around $30 Trillion. She also highlighted how, among the bourses, the Storck Exchange of Thailand had been actively promoting ESG norms within its sphere, thereby gaining in terms of increased investor confidence.
Anirban Ghosh presented a case-study on how Mahindra Group had embraced sustainability practices over the years. He spoke about the need to reinvent and evolve all the time. “It is important when we are looking at governance, to ask the right questions.” He went on to highlight the gains Mahindra Group had made from embracing sustainability. For instance, Mahindra Group made an annual saving of ₹66.7 crores through energy efficiency on investment of ₹44.5 crores in 5 years. The corporate group also realized a yearly saving of ₹9.63 crores by switching to renewable energy — meanwhile, waste management and diversion brought annual savings of ₹73 crores.
In the end, the event presented a new perspective on ESG, and how Indian companies can better their performance on the various aspects of it.