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.
References
Tohang, V.,
Hutagaol, Y., & Pirzada, K. (2024). The Link Between ESG Performance and
Earnings Quality. Australasian Accounting Business and Finance Journal, 18(1),
187-204. https://doi.org/10.14453/aabfj.v18i1.12
Bhat, B.A.,
Makkar, M.K., & Gupta, N. (2023). Corporate board structure and ESG
performance: An empirical study of listed firms in the emerging market.
Corporate Governance and Sustainability Review, 7(2), Aug-17.
https://doi.org/10.22495/cgsrv7i2p1
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