The G in ESG: With ESG here to stay, the key is ensuring that good governance practices are instilled in related board discussions and strategies.

• Author: Hayes, Bill

When ESG emerged as a boardroom topic, its environmental aspects were the main focus, board director Michael Sneed notes. Stakeholders continue to raise environmental concerns, but boards are more or less up to speed with their companies' actions and goals in that area. In the last three years, the social aspect of ESG has assumed the spotlight, with issues related to race, gender, health and economic inequality taking up a larger part of boardroom discussions.

Sneed, a director of Wayfair and Robert Wood Johnson Foundation and vice chairman of Thomas Jefferson University's board of trustees, believes that governance --the G in ESG--might finally be ready for its boardroom close-up.

"The governance piece of ESG is the latest component to gain the attention of boards and, perhaps, the one with the greatest interest to the board. After all, the role of a board is governance."

Now that governance is being bundled into ESG, the topic is getting more public scrutiny. "The opportunity for boards is to reiterate to investors and other stakeholders that good governance already includes areas that are of strategic interest to the sustainability of the company," Sneed says. "Successful companies and the board implicitly understand the connectivity of all three and how each must be balanced to ensure strong, long-term performance and viability in today's marketplace."

Roy Dunbar, a director of McKesson Corporation, Duke Energy Corporation, Johnson Controls and SiteOne Landscape Supply LLC, says factors like the Sarbanes-Oxley Act of 2002, the Dodd Frank Act and various SEC regulations have contributed to a maturation of governance over the last two decades. He cites additional improvements in areas like average age of directors, diversity of gender and ethnicity, and the prioritization of previously unleveraged skill sets, such as cybersecurity and digital transformation. Yet boards still have work to do, Dunbar says.

I sense that some boards are still not where they ought to be in having most directors fluent in matters such as climate change and how their companies might best separate and act on facts, while conscious of loud voices from the U.S. cultural divide on climate and international investor sentiment that maybe associated with significant funds flow.

According to Peter Gleason, president and chief executive officer of the National Association of Corporate Directors, governance has always been the driver of ESG, with high-quality boards...