Reclaiming the G in ESG: Governance as the Core of Sustainable Enterprise

In the global conversations surrounding ESG (Environmental, Social, and Governance), the “G” is often treated as the quieter sibling. While environmental and social issues dominate headlines, boardrooms, and policy debates, governance quietly supports any sustainability plan’s credibility, effectiveness, and implementation.

In 2024, we shared insights extensively through The “S” in ESG: Investing in Stakeholders’ Wellbeing for a Sustainable Future. However, we recognise that ESG is a triangular framework where all 3 components must work together. This is why we are now strengthening our focus on the “G” in ESG. The truth is that without strong governance, the entire concept of ESG fails. Governance determines how risks are identified, how capital is allocated, and whether decisions are driven by short-term gain or long-term value.

It should be noted that global investors, regulators, and stakeholders are shifting attention from only performative ESG disclosures to the governance structures that support them. According to McKinsey and Company, more than 85% of institutional investors now state that a company’s governance practices significantly influence their investment decisions. They are not merely asking about who sits on a board. They want to understand how that board governs.

Governance Is Strategy, Not Structure

First, we must establish that, at its heart, governance is not about bureaucratic processes or ticking off compliance checklists. It is about how power is exercised, how decisions are made, and how accountability is enforced. This is essentially why organisations with weak governance typically have surface-level environmental and social policies. But in firms with strong governance, ESG becomes part of the business model, as well as the corporate culture. It is guided by leadership that understands that fiduciary responsibility goes beyond shareholders and includes employees, communities, and future generations.

A fitting example is Unilever. Reports indicated that before sustainability became fashionable, Unilever’s governance structure had already adopted long-term thinking through its Sustainable Living Plan. What made the initiative remarkable was not only its environmental goals, but that the board also linked executive compensation to sustainability performance. This is a strong and viable governance in action. It is a clear sign of aligning leadership oversight with values.

Global Shifts in Accountability

The past 5 years have witnessed a global move from voluntary ESG frameworks to enforceable governance standards. The European Union’s Corporate Sustainability Reporting Directive, which became effective in 2024, now requires companies with more than 250 employees or 40 million euros in revenue to disclose governance risks and how they are managed. In the United States, the Securities and Exchange Commission (SEC) has proposed rules that require climate-related risk disclosures, specifically including the role of board oversight.

“Governance is no longer an optional element. It is becoming part of the core regulatory infrastructure.”

In emerging markets, the conversation is no less urgent. In 2023, the World Economic Forum (WEF) highlighted that governance reform is one of the most effective tools for improving ESG outcomes in low and middle-income countries. Where national institutions are weak or inconsistent, internal corporate governance becomes the most reliable safeguard for stakeholder trust.

Lessons from Nigeria and Other Emerging Economies

Although governance should not be confined to a national context, local realities shape how it is understood and implemented. In Nigeria, for instance, the Financial Reporting Council (FRC) introduced the Nigerian Code of Corporate Governance in 2018. It provides a governance framework for publicly listed companies, emphasising board independence, ethical leadership, and stakeholder inclusion. However, implementation has remained uneven.

We also wish to note that, in our work with clients across Nigeria and beyond, only a small number of boards actively assess ESG risks. Even fewer integrate these risks into their corporate strategy. Furthermore, according to the Nigeria Cybersecurity Outlook 2025 by Deloitte Nigeria, only a few Nigerian organisations in 2024 reported having whistleblowing mechanisms that employees trust, particularly for reporting cyber incidents or fraud.  This gap between formal codes and lived practice illustrates why governance must be seen not only as a structural issue but as a cultural one.

Similar issues affect other emerging economies. Some companies have governance frameworks but lack boards with sufficient independence or competence. Others face informal pressures to prioritise political loyalty over transparency and accountability. These challenges cannot be addressed by frameworks alone. They require shifts in board culture and leadership mindset.

The Power of the Board

The board of directors holds a central and strategic role in embedding sustainability into the DNA of an organisation. It is the board that sets the tone at the top, shaping corporate culture and signalling to management and stakeholders alike what truly matters. A passive or merely compliant board cannot drive meaningful ESG transformation. But an engaged, independent, and capable board can anchor it and accelerate it. This includes:

• Diversity and Inclusion: Board diversity—across gender, age, experience, and ethnicity—is not a symbolic gesture. It enriches decision-making, challenges groupthink, and brings a broader range of perspectives essential to addressing complex sustainability challenges.
• Transparency and Accountability: Good governance thrives on transparency. This means clear documentation of board meetings, open disclosure of decisions, proactive management of conflicts of interest, and regular public reporting on ESG progress. Accountability also involves establishing clear lines of oversight and responsibility across management.
• Linking Executive Compensation to ESG Performance: Executive pay structures should be aligned not only with financial metrics but also with ESG targets, such as emissions reductions, diversity milestones, or stakeholder satisfaction, ensuring sustainability is not just a side goal but a key performance driver.
• Effective Whistleblower and Ethics Systems: A functioning, anonymous, and accessible whistleblower system is a signal that the company values integrity and psychological safety. Boards should regularly review and test these systems to ensure they are trusted and effective.
• Long-Term Value Creation and Risk Oversight: Boards must shift from a short-term earnings mindset to one that prioritises long-term value creation. This includes identifying and managing ESG-related risks—climate change, regulatory shifts, social unrest—as part of the company’s strategic risk management framework.
• Board Education and ESG Literacy: ESG is a dynamic and rapidly evolving field. Directors must commit to ongoing education and capacity building, ensuring that the board understands emerging ESG trends, regulatory expectations, and stakeholder priorities.
• Stakeholder Engagement Oversight: Boards must play an active role in guiding how the company engages with stakeholders, from investors and employees to communities and regulators.

Governance Drives ESG

Environmental and social goals are important. However, they are dependent on governance. A company can promise carbon neutrality or social inclusion, but without credible internal governance, such promises remain wishful thinking.

For governance to be effective, it must be operational. That includes tracking data, publishing findings, setting performance thresholds, and reviewing outcomes consistently. It also means governance must no longer be seen as a function reserved for compliance teams. It is the board’s duty and society’s expectation.

A Global Imperative with Local Ownership

For institutions such as the Society for Corporate Governance Nigeria, the mission is not just to promote best practices. It is to interpret them through context and relevance. Global standards should meet local expectations. Beyond importing codes, we are on a journey of making this actionable in different organisations across the nation. That means preparing directors, mentoring young professionals, and cultivating a generation of leaders who see governance not as a restriction but as a direction. This is why many argue that effective governance is the foundation of responsible capitalism. Without it, ESG risks becoming a mere branding exercise rather than a driver of meaningful change.

Conclusion

Governance is not a silent partner in ESG. It is the operating system. Without effective governance, rooted in purpose, accountability, and transparency, sustainability goals remain aspirational. The companies that will lead the future are not necessarily those with the largest environmental projects or the loudest social campaigns. They are the companies with leadership that asks difficult questions, faces uncomfortable answers, and builds institutions that last.

The future of ESG belongs to those who understand that governance does not follow but leads.