Governance of ESG: From silos to shared expertise

In today's business landscape, the elephantine "E" in ESG—dominated by climate action, carbon reduction, and resource sustainability—often overshadows the "S" (social) and "G" (governance) dimensions

By ESSEC Business School

Published: Feb 24, 2025 12:34:07 PM IST

Updated: Feb 24, 2025 12:44:14 PM IST

Businesses around the world are slowly recognising the long-term benefits of incorporating social factors into decision-making. Image: Shutterstock

What the S!

Environmental, social and governance are the three major aspects of the current responsible business landscape. For a long time, these discussions were dominated by environmental aspects of the topic. However, increasingly social aspects—like diversity, human rights, community engagement and care for well-being— are becoming important in prompting businesses to actively include social factors in their sustainability framework. These factors assess how effectively the organization fulfills its responsibilities toward people through its internal processes, global supply chain networks, and the local communities it impacts.

Businesses around the world are slowly recognising the long-term benefits of incorporating social factors into decision-making. Companies in many regions are being encouraged by customers, NGOs, and partners to act in a socially responsible way. This helps improve their brand image and gives them a competitive edge.

In many parts of the world, mandatory reporting regulations on social indicators have made measuring companies' social impact and efforts a compliance requirement. This has become one of the main drivers for companies to focus more on the social aspect of ESG.

What Holds it Back?

The benefits of being a socially responsible company take time to show and are mostly seen in the long term, making it hard for companies to build a strong business case.

Additionally, social indicators are slow to show results and difficult to measure. These factors are often hard to define and even harder to quantify. This poses a challenge for companies in prioritizing them according to their importance and giving them the attention they deserve.

A New Governance Model is the Key

In his research, Sam Garg, Professor of Management at ESSEC Business School Asia-Pacific, highlighted a pressing challenge: the lackluster engagement of companies in meaningful social initiatives. Prof. Garg emphasized the need for a structural change in how corporate social responsibility (CSR) issues are governed within organizations. His research investigated the concept of shared board governance in corporate social responsibility, where CSR-related roles and responsibilities are distributed across multiple board committees.

Traditionally, CSR oversight has been centralized within a single board committee. However, Prof. Garg’s study challenged this paradigm, advocating for a shared governance model where CSR-related roles and responsibilities are distributed across multiple board committees. By doing so, companies can harness the unique expertise of different committees, enabling more holistic and effective engagement with social issues.

Also read: Big investors say they use ESG to reduce risk (but mostly focus on the E and G)

Drawing from an analysis of S&P 500 firms, the research revealed a striking insight: firms with shared governance structures consistently outperformed their peers in CSR performance. As such, the impact was most pronounced in companies that implemented shared governance, established a dedicated CSR committee, and encouraged overlapping committee memberships. This interconnected approach fostered collaboration, enhanced decision-making, and strengthened a company’s ability to deliver on its social impact goals.

The study underscored a critical yet often overlooked factor in ESG performance—board committee structure. Governance mechanisms must evolve beyond compliance to facilitate meaningful collaboration and innovation in addressing environmental and social challenges. As stakeholder expectations for accountability continue to rise, firms need governance systems that are both agile and collaborative.

Prof. Garg made three recommendations to boost the effectiveness of social impact initiatives. The first—establish a CSR committee that can coordinate efforts, ensure alignment, and drive the firm’s social impact agenda.

The second is to adopt a shared governance model to distribute CSR oversight responsibilities across multiple board committees to leverage specialized expertise. As mentioned earlier, the CSR committee is useful only with the shared governance model. Interestingly, just having a CSR committee does not produce any statistically significant effect on the firms’ CSR.

Additionally, in his third recommendation, Prof. Garg urged companies to optimize board committee memberships and encouraged directors to serve on multiple committees to enhance cross-functional communication and cohesive CSR strategies.

Compliance to Stewardship

By reimagining how board committees collaborate on CSR, organizations can transform complex social challenges into opportunities for meaningful impact. Effective governance is not just about compliance—it’s about stewardship that inspires change and creates value for all stakeholders.

As companies grapple with the escalating demands of ESG accountability, the governance of CSR emerges as the linchpin. Firms willing to rethink their board structures can unlock new potential to lead with purpose, create shared value, and leave a lasting mark on society.

Sam Garg is a Professor of Management at ESSEC Business School Asia-Pacific.

This article was adapted from CoBS Insights.