Broken Governance – Why the 'G' Is the Weakest Link

 

Broken Governance Why the 'G' Is the Weakest Link

1. Introduction to ESG and Governance

1.1 Understanding ESG

Environmental, Social, and Governance (ESG) criteria are a set of standards that socially conscious investors use to screen potential investments (Tohang et al., 2024). Governance, which encompasses a company's leadership, executive compensation, audits, internal controls, and shareholder rights, is foundational to ESG, ensuring transparency, accountability, and integrity within an organization (Alves, 2025). Effective governance structures oversee the implementation of environmental and social policies, ensuring that they lead to meaningful change (Alves, 2025)

Governance Challenges in ESG. Despite its importance, governance is often the most compromised pillar of ESG (Campbell & Kanjilal, 2022). Common challenges include symbolic governance structures that satisfy compliance requirements more than they drive reform, superficial audits, insider-dominated boards, and weak whistleblower protections (Campbell & Kanjilal, 2022). These issues reduce ESG to a performative exercise, where ethics are proclaimed in policy but evaded in practice, undermining the credibility of sustainability efforts (Campbell & Kanjilal, 2022;

1.2 The Role of Governance in ESG

Governance is essential to ESG, ensuring transparency, accountability, and integrity within an organization (Alves, 2025). Effective governance structures oversee the implementation of environmental and social policies, ensuring they lead to meaningful change (Alves, 2025). Governance involves setting clear standards, monitoring compliance, and enforcing ethical practices, thus building trust among stakeholders and promoting sustainable business practices (Alves, 2025).

Symbolic governance structures that exist merely to satisfy compliance requirements rather than drive reform, as well as superficial audits and insider-dominated boards, contribute to "greenwashing." This occurs when companies make misleading claims about their environmental or social impact without implementing meaningful operational changes (Olatubosun & Nyazenga, 2019).

 

1.3 The Importance of Effective Governance

Effective governance structures are crucial for ensuring that environmental and social policies yield meaningful results (Alves, 2025; Governance requires clear standards, compliance monitoring, and ethical practice enforcement, thus enhancing stakeholder trust and driving sustainable practices (Alves, 2025; Strong governance frameworks can improve the credibility and effectiveness of ESG initiatives, aligning them with stakeholder expectations and regulatory standards Moussa et al., 2024).

Research on governance structures and ESG Performance indicates that corporate governance characteristics, including board composition, ownership structure, and executive compensation, have a significant impact on companies' ESG performance (Kang et al., 2022; Yavuz et al., 2024; Bhat et al., 2023). Studies have found that board independence, gender diversity, and the presence of dedicated ESG committees can enhance a company's environmental, social, and governance practices (Kang et al., 2022; Yavuz et al., 2024; Bhat et al., 2023).

1.4 The Role of Stakeholders in Governance

Stakeholders—such as investors, regulators, and civil society organizations—play a critical role in shaping corporate governance and promoting ESG integration (Campbell & Kanjilal, 2022; Olatubosun & Nyazenga, 2019). Effective stakeholder engagement can hold companies accountable for their sustainability commitments and ensure that governance structures are meaningful (Campbell & Kanjilal, 2022; Olatubosun & Nyazenga, 2019). Proper management of stakeholder relationships can enhance the credibility and effectiveness of ESG initiatives (Moussa et al., 2024).

Governance is essential to ESG, ensuring transparency, accountability, and integrity within organizations (Alves, 2025). However, it frequently proves to be the weakest link in ESG, facing challenges such as symbolic governance structures and superficial audits (Campbell & Kanjilal, 2022). Effective governance is crucial for ensuring that environmental and social policies translate into meaningful and lasting changes. Research indicates that the characteristics of corporate governance can have a significant impact on companies' ESG performance (Alves, 2025; Kang et al., 2022; Yavuz et al., 2024; Bhat et al., 2023). Stakeholders play a crucial role in shaping governance and driving the integration of ESG (Campbell & Kanjilal, 2022; Olatubosun & Nyazenga, 2019; Moussa et al., 2024).

 

 2: The Illusion of Governance

2.1 Symbolic Governance Structures

In the realm of Environmental, Social, and Governance (ESG) initiatives, many committees often serve as mere symbolic artefacts rather than robust entities that promote substantive reform. These governance structures often emerge to satisfy compliance requirements rather than effect genuine transformation, as observed across various industries (Machuki & Rasowo, 2018; Mthombeni et al., 2023). The committees often lack sufficient authority and resources to implement effective change, resulting in governance practices that prioritize appearances over tangible outcomes (Zorn et al., 2017). This superficial approach erodes the credibility of ESG efforts, resulting in governance mechanisms that exist in form but do not function, thereby perpetuating a performative exercise rather than genuine accountability.

Symbolic governance undermines trust among stakeholders; when organizations focus on creating the semblance of governance, the essential principles of transparency and accountability are compromised (Rouf & Al-Faryan, 2022). Accordingly, these diluted governance structures foster an environment where ethical misconduct can thrive unchecked, further diminishing stakeholders' confidence in firms' sustainability commitments (Ngwenze & Kariuki, 2017). Thus, businesses risk devolving into mere optics-driven organizations, where compliance reports showcase adherence while actual practices diverge significantly from stated values.

2.2 Superficial Audits and Compliance

An additional vulnerability within ESG frameworks lies in the superficial nature of compliance audits. These audits often prioritize cosmetic compliance over genuine scrutiny, focusing primarily on ticking boxes rather than conducting a critical examination to identify and address systemic issues within organizations (Lanis et al., 2020; Samara & Berbegal-Mirabent, 2017). This lack of rigour in auditing contributes to a dangerous trend: it allows unethical practices to persist and proliferate unchecked, significantly impairing the effectiveness of governance mechanisms.

Moreover, organizations operating under the guise of compliance face increased reputational risk when stakeholders begin to perceive them as disingenuous. The reliance on ceremonial audits can create a false sense of security, as the absence of substantial corrective measures generates myths of accountability while actual governance practices remain ineffective (Singh et al., 2023). Consequently, the conflation of form and function in audit processes creates an environment where organizations can engage in practices that are at odds with their proclaimed values, further reinforcing the disconnect between governance rhetoric and reality.

2.3 Insider-Dominated Boards

The governance challenges extend to the composition of corporate boards, which are responsible for guiding environmental, social, and governance (ESG) strategies. Many boards are dominated by individuals from executive, financial, or consultancy backgrounds, creating an echo chamber that stifles diverse perspectives and insights essential for addressing the multifaceted social and environmental challenges of ESG (Pareek et al., 2019; Jiménez et al., 2020). This insider dominance raises concerns about the disconnection between governance decisions and the realities faced by communities and ecosystems that ESG initiatives aim to support.

As a result, governance decisions often prioritize the interests of investors over those of vulnerable populations that are adversely affected by corporate operations. This dynamic is detrimental to effective governance as it reinforces existing power imbalances and limits the exploration of alternative, more inclusive approaches to sustainability. Moreover, the lack of independent voices on boards may result in decisions that reflect narrow perspectives rather than the nuanced understanding required to engage with complex social and environmental issues effectively (Mishra & Kapil, 2018).

2.4 Lack of External Scrutiny

The internal governance frameworks of many organizations often escape adequate external scrutiny, compounding the problems noted earlier. Weak whistleblower protections and a lack of binding shareholder votes on sustainability initiatives lead to a self-regulated environment, fostering conditions where unethical practices can thrive (Etale & Tueridei, 2020; Gantenbein & Volonté, 2019). In this atmosphere, the absence of critical oversight weakens accountability mechanisms and hinders the overall effectiveness of governance, ultimately undermining trust in ESG efforts.

The gap left by underfunded regulatory bodies and disengaged shareholders further magnifies this problem. Without proper checks and balances, organizations often prioritize self-serving practices over genuine stakeholder engagement and responsiveness. The absence of external checkpoints leads to governance structures that fail to fulfil their essential roles, ultimately resulting in a crisis of credibility surrounding ESG initiatives.

2.5 Weak Whistleblower Protections

Moreover, the existing framework supporting whistleblower protections within ESG governance remains inadequate, leaving individuals vulnerable to retaliation if they report unethical practices. This weakness significantly discourages employees and stakeholders from voicing concerns, creating an environment in which governance gaps persist without recourse to accountability. Consequently, the silencing of internal accountability mechanisms can erode external trust in organizations and fuel the perception of failure in governance frameworks.

When individuals fear reprisals for reporting misconduct, the alignment between governance intentions and actual performance is jeopardized, as organizations risk undermining their ethical foundations. The overall Effect of inadequate protections fosters a culture of silence rather than one of accountability and transparency, ultimately contributing to weak governance systems incapable of instilling confidence among stakeholders.

2.6 The Transparency Gap and the Assurance Illusion

Ultimately, even when governance frameworks are superficially established, a deeper underlying issue arises—the "transparency gap." Many organizations produce ESG data that is unaudited, undocumented, and unverifiable, complicating any efforts toward genuine oversight. The absence of internal controls, third-party reviews, and effective integration of ESG into audit cycles exacerbates this transparency deficit, leading to questions about the credibility and reliability of reported information.

Without robust mechanisms to verify governance practices and promote assurance, firms expose themselves to significant reputational and financial risks. The illusion of governance created through unverified data further distorts stakeholder perceptions of organizational integrity and commitment, further entrenching the disparity between promises and actual practices. This scenario necessitates a critical reevaluation of how governance frameworks are designed and implemented to ensure alignment between stated objectives and actual outcomes.

Conclusion

The illusion of governance within corporate structures presents significant challenges to the efficacy of ESG initiatives. Symbolic governance structures, superficial audits, insider-dominated boards, lack of external scrutiny, weak whistleblower protections, and transparency gaps all contribute to a precarious landscape for organizations attempting to navigate the complexities of sustainability and ethical responsibility. To cultivate genuine accountability and foster transformative governance practices, organizations must address these weaknesses and strive for a meaningful integration of ESG principles into their core operational frameworks.

 

Chapter 3: Exclusion by Design

3.1 Elite-Centric Governance

A significant flaw in Environmental, Social, and Governance (ESG) governance structures is their elite-centric architecture. Corporate boards are often predominantly composed of individuals with backgrounds in executive positions, finance, or consulting. This oligarchic composition disconnects leadership from the realities faced by communities and environments that ESG initiatives purport to address (Chandrakumara et al., 2017); (Carter et al., 2010; . As a result, governance becomes relegated to a select few who may lack the requisite real-world understanding of the social and ecological challenges at hand, thereby fostering governance blind spots (Chandrakumara et al., 2017); (Carter et al., 2010;

Moreover, the tendency of these boards to prioritize shareholder interests can lead to policies that overlook or harm the communities affected by corporate activities. By favouring the perspectives and priorities of the elite over those of marginalized populations, these governance structures may exacerbate social inequality and environmental degradation rather than mitigate them (Terjesen & Singh, 2008). In essence, ESG governance, designed to promote sustainability and social equity, may inadvertently serve the interests of a narrow power base, further entrenching existing inequities (Morad, 2017; Nielsen & Huse, 2010).

3.2 Homogeneity in Board Composition

The homogeneity of corporate boards represents another critical aspect of governance failure within ESG frameworks. When boards consist of members who share similar educational and socio-economic backgrounds, they are more likely to overlook diverse perspectives necessary for effective governance (Terjesen & Singh, 2008; Damoah et al., 2021). This lack of diversity can lead to detrimental governance blind spots, as policies will primarily be formulated in elite boardrooms isolated from the realities of supply chain abuses, community displacement, and labour exploitation that occur outside these environments (Veres, 2019).

Furthermore, this sameness fosters a culture where decisions closely align with investor priorities, frequently sidelining the interests of populations most vulnerable to corporate actions. Aligning governance practices primarily with the priorities of a homogeneous group can create systemic failures in addressing environmental, social, and corporate governance concerns effectively. The resultant policies often fail to resonate with or address crucial challenges facing affected communities, perpetuating a cycle of neglect and disconnection (Carter et al., 2010; Veres, 2019).

3.3 Tokenistic Inclusion

In instances where inclusion is attempted, it often manifests as tokenistic representation rather than genuine integration. For example, boards might include a single woman or a minority representative primarily as a symbolic gesture meant to exhibit progress without reorienting the distribution of power (Kathuria & Dash, 1999; Reverte, 2009). This facade of inclusivity can sustain systems of exclusion, undermining trust among stakeholders and exacerbating accountability gaps within the ESG framework (Khaoula & Ali, 2012).

True inclusion involves not just diversifying representation but empowering diverse voices to co-create policies, standards, and governance mechanisms that genuinely reflect the needs of all stakeholders. Tokenistic practices can lead to superficial compliance with diversity mandates while failing to engender substantive engagement or change (Kemp, 2006). When diversity becomes merely decorative rather than a catalyst for decision-making, the risks associated with governance blind spots persist, ultimately diminishing the effectiveness of ESG strategies (Kathuria & Dash, 1999; Imran & Shafique, 2022).

3.4 Governance Blind Spots

Governance blind spots manifest when decision-makers lack the necessary diverse perspectives and lived experiences to formulate effective policies. When boards primarily composed of elite insiders steer ESG initiatives, key issues such as supply chain abuses and labour exploitation often go unaddressed, resulting in policy frameworks misaligned with the reality on the ground (Benkraiem et al., 2017) (Malelak et al., 2020). Consequently, these blind spots can undermine the efficacy of governance and risk-reducing ESG aspirations, rendering them simple performative exercises devoid of real influence or impact.

Moreover, inadequate stakeholder mapping exacerbates these gaps, making it challenging for organizations to identify and engage with communities most affected by their decisions (Younas et al., 2019). This lack of comprehensive understanding jeopardises the organisation's ability to enact responsible governance and erodes trust among stakeholders, who may feel ignored or marginalised (Benkraiem et al., 2017). Enhancing governance through diverse perspectives is essential for recognizing and mitigating the risks inherent in isolationist decision-making processes.

3.5 Disconnect from Affected Communities

An alarming disconnect between corporate governance structures and impacted communities complicates the implementation of ESG. Corporations frequently neglect to incorporate feedback from workers, residents, or civil society during the decision-making processes that profoundly affect them (Carter et al., 2003) (Muniandy, 2022). This oversight not only undermines the credibility of ESG efforts but also fosters an environment where trust is lost, widening the accountability gap.

The lack of effective feedback loops that guide risk and impact strategies highlights the ineffectiveness of current governance practices (Badru et al., 2019; Leatherwood & O'Neal, 1996). When governance mechanisms operate in isolation from the voices of affected stakeholders, the likelihood of enacting sustainable and ethical policies diminishes significantly (Carter et al., 2003). Building genuine relationships with these stakeholders is essential to aligning corporate governance with the realities of their environments, fostering greater corporate responsibility and self-awareness that prioritizes ESG objectives.

Conclusion

The architecture of ESG governance is inherently flawed due to its elite-centric design, lack of diversity, and a tendency toward tokenism. These structural deficiencies perpetuate blind spots in governance and create disconnects between decision-makers and the communities they impact. By addressing these issues—promoting genuine inclusivity, fostering board diversity, and ensuring robust stakeholder engagement—corporate governance can move beyond performative ESG commitments to create impactful and sustainable change. Strengthening pathways for diverse voices in governance is crucial for mitigating exclusionary practices and fulfilling the objectives of social and environmental responsibility embedded in ESG frameworks.

Chapter 4: Rebuilding Governance

4.1 From Voluntary to Statutory Compliance

To restore the integrity of Environmental, Social, and Governance (ESG) practices, the shift from voluntary, self-directed compliance to statutory obligations is crucial. Governments must implement and enforce laws that mandate environmental and human rights due diligence, compelling companies to undergo independent third-party audits. Such a legislative framework is necessary to ensure that corporate decisions transcend mere symbolism and lead to tangible, meaningful changes that build trust among stakeholders (Favotto & Kollman, 2021; Lafarre & Rombouts, 2022; Li, 2023).

Statutory compliance serves as a foundational pillar that elevates ESG initiatives from optional practices to enforceable responsibilities. By instituting legal obligations, companies are incentivized to adopt a genuine commitment to environmental stewardship and social responsibility rather than treating compliance as a cursory task (Crosby, 2018). This legal infrastructure not only paves the way for accountability but also aligns corporate actions with societal expectations, cultivating an environment conducive to sustainable business practices (Li, 2023; Dehbi & Martin‐Ortega, 2023). By enhancing enforceability through such laws, the ESG landscape can evolve, ensuring that businesses operate responsibly while safeguarding human rights and the environment.

4.2 Legal Oversight and Third-Party Audits

The effectiveness of governance in ESG contexts hinges upon rigorous legal oversight and third-party audits. Emerging frameworks, such as the European Union's Corporate Sustainability Reporting Directive (CSRD) and France's Duty of Vigilance Law, illustrate how statutory obligations can mandate accountability across entire supply chains, thereby ensuring ethical practices throughout organizational operations (Buttke et al., 2024); (McGaughey et al., 2021; Savourey & Brabant, 2021). These laws promote transparency and accountability, significantly enhancing the credibility of corporate Environmental, Social, and Governance (ESG) initiatives.

Notably, implementing legally mandated assurance and independent audits transforms the scope of ESG disclosures, no longer relegating them to mere narratives but requiring them to meet audit-level scrutiny (McGaughey et al., 2021). Consequently, companies that adopt these frameworks are more likely to embed ESG considerations into their internal audit plans, establish formal controls, and collaborate with third parties for the verification of disclosures (Buttke et al., 2024; Savourey & Brabant, 2021). As businesses transition to evidence-based leadership, the likelihood of achieving genuine progress toward sustainability and social equity increases significantly, countering the performative actions that often characterize ESG initiatives.

4.3 Integrating Civil Society into Governance

The active integration of civil society, including non-governmental organizations (NGOs), labour unions, Indigenous communities, and youth organizations, into governance structures is essential for fostering genuine engagement and co-creating policies that reflect systemic equity (Kaufman et al., 2022; Fletcher et al., 2022). By valuing diverse perspectives within corporate governance, the decision-making process shifts away from solely profit-driven logic toward more inclusive practices that effectively address environmental and social challenges (Styhre, 2018).

Civil society can serve multiple roles, including that of a watchdog, co-architect of policies, and accountability partner. The firsthand knowledge and experience of community representatives can substantially inform better governance outcomes, ensuring that policies resonate with the realities faced by marginalized and affected populations (Galani, 2025; Walton, 2022). This collaborative approach is particularly suitable for governance models that prioritise social equity and environmental justice, ultimately leading to more legitimate and effective organisational practices that enhance stakeholder trust (McGaughey et al., 2021; Hughes, 2020).

4.4 Community-Led Governance Initiatives

Community-led governance initiatives provide a promising framework for addressing evolving governance challenges. Such initiatives often include local monitoring mechanisms, stewardship councils, and partnerships that prioritize the voices of communities directly affected by corporate decisions (Stoyanova, 2019; Hill, 2020). Moreover, these grassroots governance structures provide a platform for communities to actively engage in determining their priorities and championing their values, thereby challenging traditional top-down governance models prevalent in corporate settings.

The empowerment of local groups also underscores the moral and political dimensions of governance, as they cultivate a culture of responsibility toward the environment and society (Emerson, 2018). These community-driven models demonstrate that effective governance is not merely a technical endeavour but a commitment to reflecting the needs and aspirations of those most directly affected by corporate activities. By fostering relationships built on mutual respect and collaboration, companies can diminish power imbalances and create more equitable systems of governance (Bhattacharya et al., 2019;

4.5 Ensuring Diverse Perspectives in Decision-Making

Incorporating diverse perspectives within corporate decision-making is paramount for effective governance. Ensuring that corporate boards include individuals from varied backgrounds—including Indigenous leaders, grassroots activists, and representatives from labour unions—enriches the dialogue around essential governance issues (Muñoz & Kroepfly, 2020; Kovač, 2020) (Savourey & Brabant, 2021). This diversity is crucial for shaping policies that comprehensively address the intersections of social, environmental, and economic challenges, ultimately leading to governance practices inclusive of the priorities of the most vulnerable populations.

Fostering representation in governance positions helps break down systemic barriers and address governance blind spots that often overlook the needs of marginalized groups (Bhattacharya et al., 2019; Kovač, 2020). Elevating the voices of previously marginalized individuals not only enhances the quality of corporate governance but also instils confidence among stakeholders in the organization's commitment to social responsibility and justice. A truly diverse decision-making framework positions corporations to respond adeptly to the complexities of today's global challenges, ensuring that governance reforms are deeply rooted in the lived experiences of various stakeholders (Muñoz & Kroepfly, 2020; Savourey & Brabant, 2021).

Conclusion

To rebuild governance within the ESG context, a multifaceted approach is required. Transitioning from voluntary to statutory compliance establishes a foundation for accountability, while legal oversight and third-party audits ensure transparency and adherence to ethical practices. Integrating civil society into governance structures enhances representation and fosters inclusive decision-making. Community-led initiatives highlight the moral responsibilities of governance, emphasizing the importance of local engagement and contextual understanding. Ultimately, incorporating diverse perspectives within corporate boardrooms is crucial for developing policies that genuinely reflect the needs and values of the affected communities. As governance evolves in response to these challenges, organizations stand to gain not only increased legitimacy and trust but also more effective practices that align with the United Nations' Sustainable Development Goals.

 

Chapter 5: Case Studies of Successful Governance Reforms

5.1 European Union's Corporate Sustainability Reporting Directive (CSRD)

The European Union's Corporate Sustainability Reporting Directive (CSRD) represents a pivotal governance reform that mandates corporate accountability throughout the value chain. By requiring companies to produce detailed reports and undergo third-party audits, the CSRD enhances accountability within corporate frameworks. This legislative evolution shifts the approach to governance from one based on voluntary self-reporting to one that mandates transparency, compelling companies to demonstrate a genuine commitment to sustainability rather than merely engaging in performative actions (Tsalis et al., 2020).

Through these regulations, the CSRD ensures that ESG metrics are now held to the same rigorous standards as traditional financial statements, requiring robust controls, traceability, and verifiability (Puriwat & Tripopsakul, 2023). The initial requirement for "limited" assurance transitions into the expectation for "reasonable" assurance, corresponding to a higher level of oversight and authenticity in reporting practices. As a result, companies that prepare for audit readiness are positioned favourably, gaining not only compliance advantages but also enhanced market credibility and stakeholder trust. This regulatory-grade transparency aligns corporate strategies with broader societal expectations for sustainability and ethical governance, demonstrating a significant shift in how organizations are held accountable for their environmental, social, and governance (ESG) commitments.

5.2 France's Duty of Vigilance Law

France's Duty of Vigilance Law stands as another exemplary case of progressive governance reform, mandating companies to create and enforce vigilance plans aimed at identifying and preventing human rights abuses and environmental damage within their supply chains (Niu & Wang, 2024). This law exemplifies the importance of legal oversight by requiring corporations to take concrete steps to assess and mitigate potential adverse impacts on human rights and the environment, building a systematic framework for accountability.

By instituting third-party audits and clear compliance expectations, the Duty of Vigilance Law not only elevates governance standards domestically but also sets a national benchmark that has the potential to inspire similar measures globally (Lee, 2024). This law's emphasis on proactive identification and prevention poses a significant challenge to companies, urging them not only to comply with existing regulations but also to innovate their approaches to governance and risk management. Ultimately, the Duty of Vigilance Law strengthens the link between corporate operations and ethical obligations, reinforcing a culture of responsibility that serves as a model for other nations considering similar legislation.

5.3 Community-Led Governance Initiatives

In various contexts, community-led governance initiatives have emerged as effective models for addressing governance challenges by directly involving local groups in the development and implementation of policies (Grisales & Aguilera‐Caracuel, 2019). These initiatives often incorporate mechanisms such as monitoring frameworks, stewardship councils, and sustainability partnerships, which emphasize the importance of legitimacy and community involvement in governance processes (Xie et al., 2018).

Community-led governance demonstrates that effective governance is not merely technical but deeply moral and political, prioritizing the needs and values of affected communities (Tang et al., 2024). By actively integrating civil society organizations, labour unions, Indigenous communities, and youth groups into these governance frameworks, community-led initiatives ensure that a diverse array of perspectives informs corporate decisions and that systemic inequalities are effectively addressed (Sekaran et al., 2023). Such participatory approaches showcase the benefits of collective agency in governance, transforming traditional decision-making paradigms into processes characterized by co-creation, mutual ownership, and shared accountability. The resulting policies not only gain broader acceptance but also serve as more effective solutions to complex social and environmental challenges.

Conclusion

The case studies of the CSRD, France's Duty of Vigilance Law, and successful community-led governance initiatives collectively highlight significant strides in establishing accountability and ethical practices within the realm of ESG governance. By embedding statutory obligations, leveraging community engagement, and prioritizing diverse perspectives, these reforms move beyond superficial compliance to promote genuine sustainability and social equity. These examples underscore the need to evolve governance frameworks to address contemporary challenges and foster an inclusive, responsible business environment that reflects the values and needs of diverse stakeholder groups.

 

Chapter 6: Conclusion and Call to Action

6.1 The Need for Structural Change

For Environmental, Social, and Governance (ESG) practices to realize their transformative potential, a fundamental structural change in governance is imperative. This evolution necessitates a reevaluation of who governs, the processes of decision-making, and the core values that underpin these decisions. By addressing the root causes of weak governance, organizations can foster a more transparent, accountable, and inclusive system that aligns with sustainable business practices Olorunyomi et al. (2021) (An & Kwak, 2024). This approach emphasizes addressing foundational issues—not just the visible symptoms—of broken governance.

Structural change in the governance of ESG practices is not merely a procedural adjustment but a reevaluation of the normative frameworks that guide corporate conduct. It calls for discarding outdated models that prioritize shareholder interests over community welfare, thereby enabling a governance system that genuinely reflects stakeholder concerns and promotes ethical decision-making (Joy, 2024). Such sweeping changes will pave the way for ESG to emerge as a significant contributor to long-term sustainability, ensuring that corporate governance aligns more closely with the challenges of current social and environmental realities (Pratiwi & Edeh, 2024).

6.2 Genuine Stakeholder Engagement

Genuine stakeholder engagement is pivotal for effective governance. This principle emphasizes the need to actively involve diverse voices, including employees, local communities, and civil society, in the decision-making process. Beyond mere consultation, organizations must ensure that all stakeholders have a tangible influence on governance to build trust and foster collaboration (Kossay et al., 2025). By facilitating comprehensive participation, companies can develop policies and initiatives that reflect the actual needs and values of the populations most affected by their actions.

Moving from performative to participatory ESG governance is essential; organizations must view stakeholder participation not as a mere checkbox exercise but as an integral component of their governance framework (Ilori et al., 2023). This paradigm shift enriches governance practices, ensuring that decisions are informed by the diverse contexts in which businesses operate. By genuinely integrating stakeholder insights and feedback into governance structures, companies can foster stronger relationships with their communities, mitigate risks associated with reputation damage, and enhance their legitimacy (Shapira, 2023; Handoko et al., 2024).

6.3 Enforceable Accountability

Ensuring enforceable accountability stands as a critical pillar for strengthening governance practices associated with ESG. This concept centres on establishing legal standards and independent oversight mechanisms that hold organizations accountable for their actions and commitments. Transitioning beyond voluntary compliance to enforceable obligations requires a substantial paradigm shift, ensuring that ethical practices are not merely proclaimed in policy but effectively enforced in actual operations (Hutauruk et al., 2025).

The implementation of legal frameworks and third-party audits, as exemplified by regulations such as the European Union's Corporate Sustainability Reporting Directive (CSRD) and France's Duty of Vigilance Law, exemplifies the trajectory toward enforceable accountability (Borolla et al., 2025; Junxuan, 2025). By instituting legally binding obligations, corporate governance can evolve into a robust system that demands adherence to ethical guidelines and sustainability targets. This transition will significantly enhance corporate accountability, ensuring that organizations cannot neglect their responsibilities without facing tangible consequences.

6.4 Moving Beyond Corporate Theatre

To move beyond corporate 'theatre' in governance, it is necessary to transition from performative protocols to participatory power structures. This shift requires the replacement of symbolic gestures with genuine reforms that bring about meaningful change. Focusing on transparency, accountability, and inclusivity will allow organizations to transform governance from a tool for public relations into a dynamic force for justice and positive impact (Li, 2025; Chopra et al., 2024).

Moreover, avoiding superficial engagements will drive authentic commitments to ESG values, prompting businesses to embody the principles of social responsibility and environmental stewardship in meaningful ways. Stakeholders are increasingly demanding greater sincerity and action from corporations regarding their ESG commitments; organizations must respond by embedding these principles into their strategic frameworks rather than relegating them to mere marketing gestures (Park et al., 2024; Плетенская, 2025). Ultimately, genuine engagement with communities lays the foundation for trust and cooperation, guiding organizations toward shared goals of sustainability and equity.

6.5 Governance as a Dynamic Force for Justice

Governance must be reimagined as a dynamic force for justice, grounded in principles of transparency, accountability, and participatory power. Achieving this transformation necessitates systemic change, authentic stakeholder engagement, and enforceable accountability measures (Liang, 2024; Adebıyı et al., 2024). By embracing these core principles, organizations can establish governance systems that not only uphold ethical standards but also actively promote sustainable and equitable business practices.

Reconstructing the 'G' in ESG as the moral engine of the framework—bold, inclusive, and responsive—will empower organizations to navigate today's socio-environmental challenges effectively. The proactive reformation of governance structures into mechanisms that foster justice will bridge the gap between rhetoric and reality, ensuring that ESG principles translate into substantial changes that benefit both society and the planet (Amosh, 2025; Yan, 2024). By championing a governance model that solidifies the foundation of ESG, organizations will foster lasting positive change and enhance their relevance in an increasingly conscientious marketplace.

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Building the Backbone: Inclusion or Illusion in Enhanced ESG Strategy

Building the Backbone: Inclusion or Illusion in Enhanced ESG Strategy

Chapter 1: From Structure to Shared Storytelling

 

1.1 Technical Bias in ESG Architecture

Environmental, Social, and Governance (ESG) strategies have evolved beyond compliance checklists to emphasize inclusion and shared accountability. However, many frameworks still rely heavily on technical tools—such as dashboards, metrics, and risk models—that prioritize efficiency over ethical impact. While these tools are helpful, they often obscure the real experiences of communities affected by corporate actions. Prodanova and Tarasova (2024) argue that dashboards, though essential, focus too narrowly on internal operations and neglect broader ethical responsibilities. Similarly, Liu et al. (2023) highlight that over-reliance on compliance mechanisms can disconnect corporations from meaningful societal engagement, creating a façade of responsibility.

 Technical orientation can create a false sense of progress. It promotes ESG as a checkbox exercise rather than a living framework shaped by diverse social realities. As long as ESG remains anchored in performance metrics without integrating narrative and human insight, it will fail to reach its transformative potential. Organizations must question whether their dashboards truly reflect the well-being of communities or merely serve as internal reassurance mechanisms.

 

1.2 The Missing Voices in ESG Narratives

A critical gap persists between those who design ESG strategies and the marginalized groups most impacted by corporate activities. Indigenous peoples, informal labourers, and vulnerable communities often remain excluded from decision-making. Exclusion weakens institutional credibility and limits the transformative potential of ESG. Liang et al. (2022) emphasize that strategies lacking authentic community input are unlikely to foster trust or deliver equitable outcomes. Sciarelli et al. (2021) support this view, stressing that truly inclusive ESG requires active collaboration with affected populations. Without these voices, the narratives remain one-sided and risk perpetuating systemic injustices.

The absence of marginalized voices does not merely represent a procedural oversight—it reflects a more profound structural inequality embedded in corporate governance. These gaps highlight the enduring imbalance between capital and community, where extractive logic continues to dominate strategic ESG decisions. To bridge the divide, institutions must embrace methodologies that go beyond surveys and consultations, adopting participatory models where communities actively co-create ESG goals.

 

1.3 Reframing ESG Maturity as Shared Stewardship

The evolution of ESG maturity demands a move from structural compliance to participatory stewardship. Organizations must redefine success to encompass the depth of stakeholder engagement and co-authored strategies. Ehlers et al. (2023) argue that empowering diverse voices enhances not only reputational value but also the social legitimacy of ESG frameworks. Berk et al. (2023) further note that integrating community feedback helps build trust and fosters a shared sense of responsibility. The shift moves ESG from a technocratic exercise to a collaborative journey grounded in ethical practice.

Deep community engagement not only enhances ESG ethics—it drives innovation. Wang et al. (2023) observe that co-created ESG strategies yield creative solutions that align with the Sustainable Development Goals (SDGs). Kolsi et al. (2022) demonstrate that stakeholder-centric models promote social equity and environmental accountability. Transitioning from shareholderism to inclusive governance ensures that ESG becomes a tool for long-term, sustainable growth.

To institutionalize shared storytelling, companies must build inclusive governance structures that embed accountability at all levels. Koblianska et al. (2024) argue for dismantling operational silos and aligning decision-making with community perspectives. Metrics should reflect community priorities—not just internal key performance indicators (KPIs). Paridhi and Ritika (2025) advocate for combining qualitative insights with quantitative measures to represent societal impact more effectively.

 Transition necessitates a deliberate shift in both cultural and operational approaches. Organizations must retool their internal systems to prioritize open dialogue and ongoing feedback. Organizations should measure ESG maturity not only by how effectively they mitigate risks but also by how deeply they co-create value with stakeholders. Shared stewardship ultimately becomes a practice of listening, responding, and evolving in solidarity with those on the frontlines of social and environmental change.

The future of ESG depends on a transformative shift—from technical oversight to ethical co-creation. Companies must redefine ESG success as a function of meaningful engagement and inclusive narratives. By integrating marginalized voices into strategy formation, organizations can foster genuine accountability and unlock new pathways to sustainable development.

In practice, it means going beyond token inclusion and investing in long-term relationships with communities. It means treating affected populations as partners, not as data points. It also calls for bold leadership willing to challenge conventional metrics and embrace dynamic, justice-oriented performance indicators. When ESG becomes a shared narrative rather than a corporate script, it gains the power to transform institutions and the societies they serve genuinely.

 

Chapter 2: What Defines the Enhanced ESG Stage?

 

2.1 ESG Committees Across Departments

The Enhanced ESG stage marks a transition from basic compliance to performance-oriented integration. At the level, organizations establish dedicated ESG committees that are embedded across departments and reinforce board-level governance. These formal structures promote accountability and transparency, aligning internal practices with global standards such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) (Yunus & Nanda, 2024).

However, despite these advancements, ESG disclosures often lack meaningful connection to the lived experiences of stakeholders. While structural progress is evident, narrative integration lags. Disclosures that lean heavily on technical language and frameworks risk alienating those most affected by corporate actions (Ellili, 2022). Institutions must work to ensure that governance structures enable, rather than replace, community engagement.

 

2.2 Linking Materiality to Enterprise Risk

Materiality assessments play a central role in the Enhanced ESG stage. These assessments link ESG factors to enterprise risk management systems, enabling companies to anticipate and mitigate environmental and social impacts more effectively (Kiesel & Lücke, 2019). However, the challenge remains in defining materiality not solely through corporate lenses but also through the perspectives of those impacted by corporate behaviour.

A stakeholder-informed approach to materiality ensures a holistic risk analysis. Luo and Tang (2022) argue that inclusive assessments reveal insights that may otherwise go unnoticed in top-down evaluations. Engaging stakeholders directly enhances the depth of materiality mapping and aligns sustainability efforts with community-defined priorities. The approach transforms materiality into both a diagnostic and a strategic tool.

 

2.3 Limited Assurance and Stakeholder Engagement

Stakeholder engagement is another defining feature of the Enhanced ESG stage. It must go beyond data gathering and become a continuous process of co-creation and mutual learning. When conducted meaningfully, engagement uncovers critical feedback that strengthens ESG relevance and builds trust (Ng et al., 2023; Mizuno et al., 2021).

Nonetheless, many ESG reports still offer limited assurance. Undermines public trust and creates a gap between intent and perceived credibility. Amel‐Zadeh and Serafeim (2018) call for rigorous third-party assessments and transparent methodologies to improve the reliability of ESG disclosures. Without robust verification, stakeholders may doubt both the integrity of the data and the sincerity of organizational commitments.

 

2.4 Beyond Frameworks: Authentic ESG Narratives

To avoid reducing ESG to a metrics game, organizations must communicate in ways that resonate with human experiences. Marginingsih and Suparno (2024) emphasize the power of storytelling to transform ESG from a reporting obligation into a platform for inclusive transformation. When disclosures reflect the realities of communities, they foster empathy, strengthen corporate accountability, and support ethical investment.

 Narrative shift calls for integrating structural reforms with values-based communication. Rather than separating governance from grassroots feedback, successful ESG strategies align the two. Stakeholders seek authenticity—disclosures should articulate not just what a company is doing but why it matters to those they affect.

 

2.5 Technology and the Human Element

Technological tools, such as data analytics, artificial intelligence, and big data, are increasingly utilized to enhance ESG strategies. These tools can track sentiment, monitor impacts, and tailor messaging to diverse audiences (Yang & Shen, 2022; Valliammal & Manivannan, 2023). However, over-reliance on automated systems risks silencing. They must ensure that their reports genuinely represent the human voices they aim to include.

Therefore, technology must serve as a complement, not a substitute, for human engagement. Digital tools can support more inclusive ESG models when they are used to amplify rather than automate processes. Companies must ensure that technologies facilitate, not filter, the participation of vulnerable communities.

The Enhanced ESG stage represents both progress and a pivotal challenge. While structural sophistication increases, true maturity lies in reconciling frameworks with lived experience. Through inclusive governance, stakeholder-driven materiality, trustworthy assurance, and authentic communication, organizations can realize the full potential of ESG.

Success at this stage demands more than systems—it requires a redefinition of purpose. ESG must evolve from compliance to co-creation, from metrics to meaning, and from reporting to relationship-building. Only then can it become a sustainable force for equity, innovation, and shared prosperity.

 

Chapter 3: Narrative Capture and the Politics of Visibility

 

3.1 Visibility Without Voice

As ESG conversations intensify globally, the gap between representation and meaningful participation becomes more apparent—particularly for Indigenous peoples, informal workers, and displaced communities. ESG teams frequently feature these groups in their reports and sustainability campaigns as symbols of corporate responsibility. However, organizations rarely consult them when shaping policies or indicators that govern their lives. Paradox—visibility without a voice—is emblematic of what scholars describe as "narrative capture," where storytelling around ESG sidelines those who should be its core beneficiaries (Zahid et al., 2024).

Narrative capture turns communities into subjects of documentation rather than active participants in defining sustainability. It reflects a dynamic in which organisations include marginalised populations in promotional materials while excluding them from strategic decision-making processes. Dissonance erodes trust and undercuts the legitimacy of ESG initiatives that purport to serve those communities.

 

3.2 Elite Control of ESG Storytelling

Elites further entrench the imbalance by controlling ESG narratives. Financial institutions, global consultancy firms, and multinational corporations dominate the framing of ESG discourse. As a result, performance indicators often reflect what is valuable to investors or regulators, not necessarily what is just or sustainable for local communities. Badía et al. (2019) argue that such top-down approaches risk obscuring environmental degradation and social harm beneath polished communication strategies.

By treating narrative construction as a branding exercise, organizations convert ESG storytelling into tools of legitimacy rather than instruments of accountability. Redefines public perception without substantively altering on-the-ground realities. Worse, it risks creating a façade of progress that satisfies capital markets while exacerbating structural inequities.

 

3.3 The Risk of Reproducing Exclusion at the Enhanced Stage

At the Enhanced ESG stage, where structural maturity has improved, the danger lies in institutionalizing these exclusionary patterns. If organisations do not recalibrate their governance models to include marginalised voices actively, ESG risks becoming another layer of bureaucracy that codifies inequity. López-Toro et al. (2021) warn that symbolic inclusion—where visibility substitutes for agency—may validate inequitable structures under the guise of reform.

The repetition of a one-dimensional ESG narrative reinforces a status quo where affected communities remain passive recipients of aid or attention rather than co-creators of change. The Enhanced stage should, therefore, serve as a moment of critical reflection: are governance structures and communication practices advancing equity or merely entrenching privilege?

 

3.4 Reshaping Participation: From Narrative Capture to Narrative Agency

To move beyond symbolic visibility, organizations must embed participatory methods into their ESG frameworks. It means empowering affected communities to define ESG goals, shape implementation strategies, and evaluate outcomes. Participatory governance—through co-creation workshops, citizen panels, and continuous stakeholder engagement—offers a pathway to democratize ESG storytelling (Achour & Boukattaya, 2022).

Such engagement must go beyond periodic consultations. It must be iterative, relational, and grounded in mutual respect. These practices not only restore dignity to marginalized voices but also yield more context-sensitive, resilient, and ethical ESG outcomes.

 

3.5 Methodological Shifts for Inclusive Narratives

Organizations should adopt diversified engagement methodologies that prioritize qualitative input and community-defined indicators. These approaches challenge the dominance of top-down metrics and encourage more nuanced understandings of impact. Incorporating storytelling, ethnographic research, and participatory action methods can reveal realities that spreadsheets miss.

Moreover, ESG performance reviews must reflect a plurality of narratives—not just what can be captured in annual reports. The design of impact assessments, assurance mechanisms, and materiality analyses should be co-authored with stakeholder communities, ensuring that evaluation is not merely a validation exercise but a tool for transformation.

The politics of visibility—and the narrative capture that underpins it—pose profound risks to the credibility and ethical foundation of ESG. As organizations move into the Enhanced stage, they must shift from showcasing communities to listening to and learning from them. ESG must become a platform for narrative agency, not just visibility.

 The shift requires rethinking who tells the ESG story, and The story depends on who tells it and whose voices shape its future. It calls for deep accountability, participatory governance, and narrative pluralism. Only then can ESG truly serve its purpose: to build a just, sustainable, and inclusive world for all stakeholders—not just those in boardrooms or financial markets.

 

Chapter 4: The Myth of Consent and the Limits of Participation

 

4.1 Consent as Procedure, Not Partnership

The Enhanced ESG stage represents an aspiration toward inclusive governance, however. Organizations often compromise on that aspiration by how they operationalize consent. Rather than reflecting meaningful partnership, consent frequently becomes a procedural obligation—a checkbox rather than a bridge. Corporate practices such as Free, Prior, and Informed Consent (FPIC), intended to safeguard stakeholder rights, are too often reduced to symbolic compliance activities. Rodhouse and Vanclay (2016) argue that rushed consultations and selective outreach undermine the integrity of consent.

In such contexts, communities become passive recipients of predetermined agendas rather than co-creators of decisions. Procedural framing erodes trust and reinforces power imbalances. Instead of fostering empowerment, consent becomes a shield behind which extractive and inequitable practices persist. ESG frameworks must, therefore, evolve from procedural engagement toward sustained and reciprocal partnerships rooted in trust, dialogue, and shared agency.

 

4.2 Manufactured Agreement and Narrative Distortion

Another concern arises in the form of "manufactured consent"—a portrayal of harmony and alignment between corporate objectives and community interests that may not reflect actual sentiment. Organizations eager to demonstrate social license sometimes curate narratives that overlook dissent, gloss over conflict, or oversimplify complex relationships. These manufactured agreements present a façade of legitimacy that distorts the ethical core of ESG.

When dissenting voices are suppressed or omitted from reports, companies risk not only misrepresenting community sentiment but also weakening their legitimacy. Narrative distortion can mask unresolved grievances and perpetuate cycles of exclusion. True ESG integrity demands that organizations confront ambivalence and conflict head-on, acknowledging the complex realities of stakeholder engagement rather than presenting a sanitized version for public consumption.

 

4.3 Redefining Participation as Shared Governance

To address the pitfalls of procedural consent and narrative distortion, Leaders must redefine participation to function as shared governance. One that emphasizes the importance of mutual understanding and collaboration. Involves redistributing power, honouring community knowledge systems, and embedding stakeholders in decision-making processes at every stage of the process. Participation should not be limited to a single consultation or agreement; organizations must institutionalize it within their governance structures to ensure ongoing effectiveness and long-term sustainability. Shared governance fosters genuine co-creation and mutual accountability. It ensures that ESG frameworks reflect not only regulatory compliance but also the lived experiences and aspirations of affected communities. The shift requires dismantling hierarchies that prioritize investor concerns over community well-being and cultivating models where every stakeholder's voice is valued and matters.

Authentic governance is measured not by the number of reports produced or workshops held but by the quality of relationships built and sustained over time. It values transparency, humility, and adaptability. Organizations that embrace these principles position themselves as ethical partners rather than extractive entities, fostering long-term resilience and legitimacy.

The Enhanced ESG stage presents an opportunity to reevaluate what it means to engage with communities. Treating consent as a procedure rather than a partnership limits the transformative potential of ESG. Manufactured agreement and narrative distortion obscure truths. Organizations must acknowledge that issue if they hope to achieve genuine progress.

Redefining participation as shared governance enables organizations to move beyond symbolic engagement and toward ethical co-creation. By embedding collaboration, acknowledging dissent, and honouring community agency, ESG can evolve into a practice of justice, equity, and sustainability. Leaders must replace the myth of consent with a reality of partnership—one where they hear all voices and empower all stakeholders to shape the future together.

 

Chapter 5: Building Blocks of Inclusive Enhanced Maturity

 

5.1 Diversify ESG Committees

To construct a truly inclusive Enhanced ESG framework, organizations must begin by diversifying their ESG committees. Rather than being confined to executives, legal advisors, and internal compliance officers, these bodies should also include local community representatives, Indigenous leaders, gender advocates, youth activists, and social scientists. The inclusive model ensures that the governance structure mirrors the full spectrum of stakeholder experiences and needs.

Research highlights that diverse decision-making bodies improve ethical foresight and generate more contextually responsive strategies. Social scientists can help decode complex socio-political realities, while local leaders contribute grounded insights that traditional boardrooms often overlook. Including representatives from historically marginalized communities enables ESG processes to evolve with integrity, ensuring that decisions reflect the lived experiences of diverse groups rather than relying on abstract models.

However, representation alone is not enough. ESG leaders must couple true diversity in governance with empowerment. Marginalized voices must hold equal power in agenda setting, voting, and evaluation. Organizations must ensure that all members contribute meaningfully to policy, not as symbolic tokens but as co-creators. A collaborative structure fosters trust, enhances accountability, and lays the groundwork for ethical and participatory governance.

 

5.2 Redesign Materiality Assessments

Materiality assessments, traditionally shaped by investor priorities, must be reimagined through a community-informed lens. In conventional ESG models, financial materiality often takes precedence, marginalizing ecological, social, and cultural concerns. To advance inclusivity, companies must co-create materiality criteria with those who are most directly affected by their operations.

Engaging communities early and consistently in these assessments help identify issues that matter beyond the balance sheet—such as cultural preservation, displacement, water rights, and labour dignity. Collaboration shifts the definition of risk from a corporate liability to a human consequence. Participatory materiality assessments challenge the corporate echo chamber, embedding democratic legitimacy into ESG planning.

Methodologically,  requires integrating qualitative inputs—such as focus groups, storytelling, and participatory mapping—with standard quantitative risk analyses. Such hybrid models empower communities to identify red flags and prioritize outcomes that impact their long-term well-being. Materiality becomes a shared framework, not a managerial tool.

 

5.3 Reframe Reporting

ESG reporting must evolve from checklist-driven compliance to inclusive storytelling. Traditional ESG disclosures prioritize standardized metrics, providing limited insight into the nuanced realities of community impacts. To humanize ESG, organizations should embed narrative-based, participatory reporting that reflects lived experiences and community perspectives.

 Reframing involves shifting focus from what is easiest to report to what is most necessary to understand. Narrative disclosures should highlight community testimonies, stakeholder interviews, and thematic reflections from ESG committee members. Such content not only increases transparency but also provides moral context to organizational metrics.

Importantly, these reports must be accessible—both linguistically and digitally, as well as culturally. Involves translating ESG materials into local languages, utilizing visual formats, and ensuring that community members can effectively respond to and engage with the content in their language. Reframed reporting fosters dialogic engagement, turning reports into platforms for mutual learning and accountability.

 

5.4 Embed Consent Mechanisms

Moving beyond procedural consent, organizations must embed dynamic, ongoing consent mechanisms into every phase of ESG strategy. It means that affected communities should not only be consulted but also empowered to authorize or halt decisions based on evolving conditions. Consent must be iterative, not a one-time event.

Principles of equity, dignity, and cultural relevance must inform consent models. For example, consent frameworks should consider gender-sensitive participation, intergenerational dialogue, and mechanisms to accommodate language barriers or digital exclusion. Corporations should establish independent ombuds institutions that monitor and validate the integrity of consent.

Embedding consent mechanisms strengthens relational trust and minimizes risks of future resistance or litigation. When communities understand that they can influence outcomes continuously—not just reactively—they are more likely to become long-term partners in sustainability rather than adversaries. ESG becomes an act of stewardship shared in real-time.

 

5.5 Audit for Equity

Ultimately, building a truly inclusive Enhanced ESG model requires equity-focused audits that extend beyond financial compliance to encompass broader social and environmental considerations. These audits should assess how ESG practices impact various communities, taking into account factors such as geography, ethnicity, socioeconomic status, gender, and disability. The goal is to identify and address hidden disparities in outcomes, informing corrective action.

Auditing for equity means creating and applying distributional metrics. For instance, how is water access distributed among urban vs. rural populations in a utility project? Which groups benefit most from employment opportunities, and which bear the brunt of environmental risks? Such assessments provide an ethical mirror, helping organizations transition from generalized reporting to justice-centred accountability.

Diverse evaluators, including academic researchers, civil society members, and community leaders, should lead these audits. Their findings must inform future planning cycles. Transparent publication of equity audits further empowers stakeholders and reinforces the organization's commitment to inclusion.

Organizations cannot achieve inclusive ESG maturity through rhetoric or isolated reforms; they must restructure governance systems at every level. They can begin by diversifying ESG committees, redesigning materiality assessments, redefining reporting practices, incorporating dynamic consent mechanisms, and conducting equity audits. This approach enables organizations to foster sustainable and ethical partnerships with their stakeholders.

 Transformation shifts ESG from a compliance tool to a co-created value system. It centres marginalized voices, redistributes power, and challenges the status quo. As global challenges—from climate change to inequality—intensify, only a holistic, inclusive ESG model can ensure that business practices align with the broader goals of justice, sustainability, and collective resilience.

 

Chapter 6: What Stakeholders Expect from Inclusive Enhanced ESG

 

6.1 Clarity: Community Involvement and Voice

As organizations adopt Enhanced ESG models, stakeholders—particularly civil society actors—expect a clear explanation of who was involved in decision-making and how decision-makers considered their voices. Transparency in stakeholder identification and engagement processes helps prevent perceptions of tokenism and builds institutional trust (Sekimoto & Amran, 2025; Shobhwani & Lodha, 2024).

 Expectation extends beyond naming participants to explaining their roles: Were community leaders co-designers of the strategy? Were Indigenous representatives consulted on land use? Did marginalized voices shape final decisions? Answering these questions helps validate the participatory nature of ESG initiatives. Organizations should publish comprehensive reports that detail both quantitative outcomes and qualitative narratives from stakeholder interactions.

Accessible documentation—such as infographics, multilingual summaries, and publicly available minutes—can reinforce transparency. When stakeholders see their input reflected in strategy and reporting, it reinforces mutual respect, enhances credibility, and builds long-term legitimacy.

 

6.2 Continuity: Ongoing Engagement

Stakeholders expect that engagement be continuous—not a one-time consultation. ESG initiatives require durable relationships, not episodic outreach. Communities want to know that their involvement will persist across the planning, implementation, and evaluation phases (Wahab et al., 2024).

Ongoing engagement involves institutionalizing practices such as standing advisory panels, quarterly community check-ins, participatory monitoring systems, and inclusive feedback loops. These mechanisms ensure that evolving community concerns are captured and addressed in real time.

Embedding continuity also means honouring informal relationships and culturally relevant forms of communication. In many contexts, trust is not built through formal meetings but rather through consistent presence, active listening, and adaptation. Organizations should incorporate cultural sensitivity into their engagement strategies to foster inclusive and sustainable partnerships that benefit all parties involved.

 

6.3 Credibility: Alignment with Lived Realities

Credibility is central to stakeholder expectations. Reports and performance evaluations must reflect the actual experiences of those affected—not just organizational claims. Communities lose trust when organizations report information that does not match their lived experiences (Amosh et al., 2023; Shin et al., 2023).

Credibility requires triangulating data sources—combining quantitative performance metrics with testimonials, ethnographic insights, and community storytelling —to provide a comprehensive understanding. Reports should explain both what happened and why it matters in human terms. For example, a drop in emissions should be contextualized by how it has improved air quality or health in surrounding neighbourhoods.

Third parties can bolster credibility by validating ESG practices, participatory audits, and community-led impact assessments. By including community voices directly in reporting and review, organizations build stronger evidence bases and more authentic ESG narratives.

 

6.4 Correctives: Mechanisms for Redress

Stakeholders also expect that organizations have pathways to acknowledge failure and correct course. ESG practices are complex, and missteps are inevitable. What matters most is how organizations respond to those failures. A credible ESG framework includes corrective mechanisms that empower stakeholders to raise concerns and seek redress (Kuzey et al., 2023; Lee et al., 2023).

Correctives include formal grievance channels, transparent escalation procedures, and restorative practices. These mechanisms must be well-publicized, easily accessible, and responsive to diverse linguistic and cultural needs. Organizations should also maintain public dashboards that display complaints, resolutions, and systemic changes resulting from stakeholder feedback.

By addressing grievances and publicly acknowledging shortcomings, organizations demonstrate humility and accountability. Commitment to redress reinforces trust and closes the loop on participatory ESG governance. It also encourages stakeholders to remain engaged and vocal, knowing that Leaders will not ignore their concerns.

As Enhanced ESG evolves, stakeholder expectations will continue to drive the need for greater transparency, accountability, and collaboration. Clarity about community involvement, continuity of engagement, credibility in reporting, and robust corrective mechanisms form the backbone of these expectations.

Meeting these standards is not just an ethical obligation—it is a strategic imperative. Inclusive, responsive ESG systems help companies build resilient partnerships, mitigate risks, and align with global norms of sustainable development. Ultimately, the success of ESG lies in how well it reflects the lives, struggles, and aspirations of those it claims to serve. Only by honouring the social contract can ESG become a transformative tool for justice, equity, and collective progress.

 

Chapter 7: Community-Led ESG – Toward Equity and Shared Narratives

 

7.1 Challenging the Top-Down ESG Paradigm

A fundamental critique of conventional ESG frameworks is their centralization—where decision-making remains confined to executives, consultants, and external experts. The top-down model assumes that sustainability can be engineered and imposed, often neglecting the specific needs, values, and cultural dynamics of local communities. Community-led ESG initiatives directly challenge the paradigm, offering decentralized and participatory alternatives rooted in local governance.

The case of Indigenous forest stewardship in Canada exemplifies a shift. In these models, Indigenous communities manage vast tracts of ancestral land using generational ecological knowledge that emphasizes balance, regeneration, and interdependence (Demers et al., 2021). These practices not only protect biodiversity but also uphold social and cultural rights. Similarly, women-led solar cooperatives in Kenya demonstrate how community-led energy governance fosters socioeconomic resilience and addresses gender inequality through ownership and inclusion (Efthymiou et al., 2023).

These examples highlight the shortcomings of top-down ESG strategies, which often impose technocratic solutions. Organizations often disconnect ESG strategies from the lived realities of the communities they serve. Led models demonstrate that governance grounded in lived experience can yield more sustainable, equitable, and locally relevant outcomes. For organizations in the Enhanced ESG stage, the challenge lies in learning from and integrating these models, shifting from a dominant to a partnership-based approach.

 

7.2 Local Knowledge as a Strategic Asset, Not a Token

Conventional ESG often treats local voices as consultative—bringing them in for validation after decisions have been made. The practice undermines the legitimacy of ESG claims and perpetuates extractive relationships. In contrast, community-led ESG repositions local and Indigenous knowledge as a core strategic asset, indispensable to long-term environmental and social resilience.

Traditional agricultural practices, water stewardship, and communal land management offer invaluable insights into sustainability. In South America, agroecological methods rooted in Indigenous traditions have helped restore soil fertility and enhance food sovereignty. In Southeast Asia, community-based fisheries have helped revive ecosystems by drawing on traditional laws. These practices represent rich, place-based knowledge systems that are often more adaptive than imported technical solutions (Dıcuonzo et al., 2022).

ESG strategies that prioritize local expertise are better equipped to address site-specific risks and capitalize on local opportunities. Beyond environmental stewardship, local knowledge enhances social accountability, cultural relevance, and the legitimacy of governance models. Valuing expertise requires co-governance arrangements, dedicated funding for local research, and recognition of customary leadership structures.

Organizations must go beyond symbolic inclusion by incorporating local knowledge into their planning, implementation, and monitoring processes. For example, community members can co-lead impact assessments, contribute to ESG reporting, and serve on decision-making committees. Redistribution of epistemic power is not only ethically just—it is operationally wise.

 

7.3 Redefining ESG as Shared Governance and Equity-Building

One of the most pressing critiques of ESG is its tendency to replicate the very inequalities it claims to challenge. Despite the rhetoric surrounding sustainability, many corporate ESG strategies maintain centralised control, prioritise shareholder interests, and exclude communities from having a meaningful voice in decision-making. Community-led ESG frameworks offer a path to overcoming limitations by redefining governance as a shared and equity-driven process.

Equity-building within ESG involves three critical transformations: power-sharing, redistribution of benefits, and cultural recognition. Power-sharing involves institutionalizing mechanisms for joint decision-making with affected communities, such as through governance boards, voting rights, or co-managed initiatives. Redistribution of benefits includes equitable profit-sharing, employment opportunities, and reinvestment in local development. Cultural recognition entails honouring languages, traditions, and values as integral to sustainability rather than viewing them as obstacles to modernization (Georgakakis et al., 2017).

Companies that adopt equity-centred ESG governance must abandon extractive logics and instead view communities as rights-holders rather than just stakeholders. In practical terms, it means collaborating on ESG target-setting, enabling community-defined success indicators, and fostering intergenerational inclusion.

Real-life examples abound. In Tanzania, community water user associations manage irrigation networks democratically. In Bolivia, Indigenous governance councils negotiate mining and forest access in accordance with ancestral law. These models are not outliers—they are harbingers of a more just, pluralistic future.

The emergence of community-led ESG models signals a profound shift in the logic and practice of sustainability governance. These frameworks challenge the hierarchies embedded in conventional ESG and offer grounded alternatives that prioritize local ownership, knowledge, and equity. As organizations transition into the Enhanced ESG stage, they must shift from consulting with communities to co-governing alongside them.

To achieve this, companies must reject tokenism, integrate local knowledge as a strategic infrastructure, and restructure their governance frameworks to share power. Doing so transforms ESG from a compliance regime to a moral and relational commitment—a process of collective stewardship rooted in justice, not just metrics.

Community-led ESG is not a fringe alternative; it is the future of sustainability. It demonstrates that fundamental transformation comes not from the top but from deep engagement with those who live closest to the land, the water, and the consequences of corporate decisions. By aligning with these models, organizations can cultivate trust, enhance resilience, and develop narratives that truly reflect shared values and destinies.

 

Chapter 8: What Comes Next – From Enhanced to Integrated ESG with Inclusion at the Core

 

8.1 ESG Metrics Tied to Community Outcomes, Not Just Enterprise Value

As organizations transition from Enhanced to Integrated ESG, the emphasis must shift toward measuring success through the lens of community well-being rather than shareholder value alone. Stakeholders increasingly demand that ESG metrics reflect tangible impacts on people and ecosystems. Requires developing indicators rooted in community-defined priorities, such as access to clean water, air quality, employment equity, cultural preservation, and local biodiversity.

Aligning ESG with community outcomes enables businesses to foster deeper trust, demonstrate genuine accountability, and fulfil their social license to operate effectively. Instead of abstract performance scores, Integrated ESG recognizes community feedback and co-created benchmarks as primary indicators of progress. Companies that adopt this approach benefit from more robust stakeholder relationships and build credibility in an environment where superficial metrics are no longer enough.

By embedding these locally derived indicators into reporting frameworks, companies bridge the gap between compliance and commitment—between procedural performance and transformative impact. Recalibration lays the groundwork for a more ethical and equitable ESG practice.

 

8.2 Shared Decision-Making Power

The second pillar of Integrated ESG is redistributing decision-making power to include affected communities and stakeholders as co-authors of ESG strategies. Moving beyond consultation to shared governance ensures that policymakers embed community voices in policy formation, implementation, and oversight. Shared decision-making mechanisms might include joint ESG boards, community advisory panels, and participatory budgeting models. These structures not only enhance representation but also improve the responsiveness of ESG actions. When communities help define goals, risks, and trade-offs, strategies become more adaptive, inclusive, and grounded in lived realities.

Organizations that democratize ESG governance demonstrate humility and foster long-term, mutually beneficial partnerships. The participatory model drives innovation, enhances legitimacy, and ensures ESG strategies are not only context-aware but also just.

 

8.3 External Assurance with Local Validation

For ESG disclosures to carry weight, Independent auditors must verify them, and local communities must validate them. While external assurance through third-party audits is important for credibility, it is insufficient unless the communities themselves are part of the validation process.

Local validation introduces experiential truth into ESG evaluation. When community members verify whether stated impacts align with actual outcomes, it strengthens trust and combats greenwashing. Companies should integrate community scorecards, participatory audits, and on-the-ground impact testimonials into their assurance frameworks to enhance transparency and accountability.

 A dual-layer validation system—external and local—ensures that reports are not only technically accurate but also ethically authentic. It reflects a shift from control-based compliance to trust-based accountability, anchoring ESG practices in transparency and lived truth.

 

8.4 Governance Structures Reflecting Grassroots Input

Finally, Integrated ESG demands governance structures that institutionalize grassroots input. Representation should not be symbolic—it must be operational. Communities must have defined roles in ESG governance, with apparent influence over agendas, decisions, and evaluations.

Communities can achieve this by electing oversight councils, mandated seats on ESG committees for local stakeholders, or co-designed governance charters. Importantly, Organizations must back these mechanisms with adequate resources., capacity-building, and decision-making authority.

Embedding grassroots perspectives into governance transforms ESG from a corporate initiative to a collective endeavour. It centres on marginalized voices, enhances contextual intelligence, and fosters a culture of inclusion. As a result, governance becomes not only more democratic but also more effective in addressing complex socio-environmental challenges.

The path from Enhanced to Integrated ESG is not simply an incremental improvement—it is a paradigm shift. It redefines success not solely in terms of enterprise value but also through the health, dignity, and agency of communities. It replaces symbolic inclusion with shared power. It elevates compliance into co-creation.

By tying ESG metrics to community outcomes, institutionalizing shared governance, combining external assurance with local validation, and embedding grassroots perspectives into decision-making, companies can operationalize inclusion as a foundational principle—not an afterthought.

 Transformation is urgent. As the climate crisis intensifies, inequality grows, and trust in institutions erodes, only a truly Integrated ESG model can rebuild legitimacy and resilience. Inclusion is no longer a phase of ESG maturity—it is its cornerstone. Organizations that recognize this will not only lead—they will also thrive.

 

 

Chapter 9: Conclusion – From Margins to Mandates

 

9.1 Reframing ESG Through the Lens of Narrative Justice

The transition from Enhanced to Integrated Environmental, Social, and Governance (ESG) frameworks represents a pivotal shift in how corporations conceptualize their responsibility and sustainability. Evolution demands more than internal compliance or polished reporting—it requires a commitment to narrative justice. Organizations must move beyond surface-level inclusion to actively dismantle systems that perpetuate exclusion and inequity. The question is no longer whether stakeholders are acknowledged but how meaningfully they shape outcomes.

Narrative justice reframes ESG as not only a corporate initiative but a relational process built on equity, transparency, and shared power. It insists that ESG must reflect the voices, experiences, and needs of those at the margins, not just those in boardrooms. The approach transforms ESG from a performative framework into a co-created mandate, redefining legitimacy in the age of stakeholder capitalism.

 

9.2 From Enhanced Models to Integrated Inclusion

 

9.2.1 Metrics Aligned with Community Outcomes

A central pillar of Integrated ESG is recalibrating performance metrics to prioritize community outcomes. Traditional ESG reporting has often centred enterprise value—highlighting how sustainability practices bolster investor confidence or improve risk profiles. However, stakeholders now demand that ESG metrics reflect their lived experiences.

Organizations must develop indicators that track impacts on local livelihoods, ecological systems, public health, cultural continuity, and social cohesion. Shift not only improves the accuracy of ESG assessments but also deepens accountability. Community-based indicators reveal what matters most on the ground and empower affected populations to shape their futures. By grounding ESG metrics in community realities, organizations enhance the relevance, credibility, and ethical standing of their strategies (APA citation needed).

 

9.2.2 Institutionalizing Shared Decision-Making

Real inclusion goes beyond consultation—it requires shared decision-making power. Integrated ESG mandates that communities and other stakeholders co-own the planning, execution, and evaluation of sustainability strategies. The co-governance model aligns with stakeholder theory and participatory governance research, which indicate that shared leadership fosters innovation, reduces conflict, and strengthens organizational legitimacy (APA citation needed).

Structures such as stakeholder councils, joint decision boards, and participatory policy labs exemplify how organizations can redistribute authority. These platforms not only capture diverse perspectives but also ensure that ESG initiatives align with local aspirations and values. Companies that institutionalize shared governance demonstrate their commitment to ethical engagement, thereby enhancing both social impact and organizational resilience.

 

9.2.3 External Assurance Enhanced by Local Validation

Transparency and accountability are foundational to Integrated ESG. However, traditional audit and assurance processes often remain detached from the realities of the community. To enhance trust, organizations must adopt external verification systems that incorporate local validation processes.

 The hybrid model combines independent audits with community-led assessments, such as participatory scorecards, citizen audits, and grassroots monitoring mechanisms. Local validation ensures that ESG claims are not only technically accurate but also contextually grounded. It empowers stakeholders to hold corporations accountable while providing companies with richer, more actionable insights into their operations. The model directly counters reputational risks, such as greenwashing, and signals a genuine commitment to integrity.

 

9.2.4 Grassroots-Informed Governance Structures

Robust ESG governance structures must reflect grassroots input. Governance systems that include marginalized stakeholders—whether through formal seats, advisory roles, or rotating community liaisons—are better equipped to navigate the complexities of social and environmental challenges.

Such inclusivity fosters adaptive governance, enabling organizations to respond more effectively to shifting community needs and ecosystem pressures. Governance grounded in grassroots insights allows corporations to anticipate risks, co-design solutions, and build long-term trust. It replaces top-down decision-making with collaborative stewardship, anchoring ESG in the realities of those it seeks to serve.

 

9.3 The Future of ESG: Inclusion as Imperative, Not Accessory

The path to Integrated ESG is not merely a technical upgrade—it is a transformation of values. Organizations must adopt inclusion as a core principle rather than an optional enhancement. Shift means redefining success through dignity, dialogue, and democracy, not just financial performance.

Inclusion must permeate every layer of ESG practice—from metric design to strategic decision-making, assurance mechanisms, and governance frameworks. It must be seen not as a finite goal but as a continuous process of co-learning, co-creation, and mutual accountability.

 

9.4 Conclusion: Mandating a Shared Future

As ESG evolves, so too must the principles that guide it. From margins to mandates, the future of ESG lies in its capacity to be inclusive, relational, and grounded in justice. Integrated ESG frameworks must centre on those who have been historically excluded from corporate decision-making, recognizing that sustainability without equity is incomplete.

To truly meet the challenges of climate change, inequality, and systemic injustice, organizations must embrace ESG not just as a strategy but as a shared narrative. By prioritizing community outcomes, redistributing decision-making power, validating performance through local experience, and incorporating grassroots voices into governance, ESG can become a powerful tool for collective progress.

The next generation of ESG will not be measured solely by carbon footprints. Stakeholders will judge it by its capacity to transform systems, not just by investor reports, uplift communities, and restore trust. Inclusion, therefore, is not a phase in ESG development. It is its foundation.

 

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