Governance and Purpose
The growing importance that investors attach to responsible governance illustrates the need to strengthen it. Investor demand for governance issues has risen dramatically (+5,000% over the past 10 years, or +49% year-on-year). They have risen from just 27 in 2009 to nearly 1,400 in 2019, according to McKinsey. Approximately 70% of all investor inquiries recorded over the past 10 years were governance-focused .
"Governance is the first pillar to be able to rely on before making any investment decision." MSCI's research indicates that it is "possible that governance risks have had a more immediate impact on stock prices than social or environmental issues" .
Efforts to address the social and environmental challenges that matter to investors must be underpinned by a strong governance structure to be successful.
Companies with good governance outperform over the long term and are better positioned to seize new opportunities. What's more, many of the biggest corporate scandals are attributable to weak governance structures.
As a result of the increased focus on ESG factors, governance structures are coming under increased scrutiny and companies are being asked to explain why they exist, their “raison d’être”. The U.S. Business Roundtable, which for many years has argued that the primary purpose of a company is to generate money for its shareholders, has issued a new statement on corporate purpose in 2019, saying, "Americans deserve an economy that enables every person to succeed through work and creativity and to live a life of meaning and dignity. Our stakeholders are all essential. We are committed to creating value for all of them, so that our companies, our communities and our country can succeed in the future .
At stratESGy we look at the coherence of three components: Purpose, Business Model and Processes. This is part of our Integration Module: www.stratesgy.com/integration
2. MSCI (June 2020) www.msci.com/esg/deconstructing-esg-performance
3. Business Roundtable (August 2019) www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-promote-an-economy-that-serves-all-americans