Why Governance Is So Important in ESG?

EcoVision
Nov 28
2 min read

Governance matters in ESG because it’s the “operating system” that makes the E and the S real. Good governance ensures that sustainability is not a slogan but a set of decisions, controls, incentives, and accountability mechanisms that actually influence behaviour.

Governance turns intent into action. Environmental and social commitments mean nothing without decision‑rights, data controls, and consequences.
Governance allocates accountability. Someone must own the risk, the data, the investment, the trade‑offs.
Governance prevents greenwashing. Strong oversight, internal audit, and reporting controls force organisations to match claims with evidence.
Governance connects ESG to value. Boards decide capital allocation, risk appetite, executive incentives — all core levers of sustainability performance.
Governance is how regulators and investors judge credibility. You can’t regulate “E” or “S” outcomes without governance frameworks.

In short, governance is the multiplier: with it, small ESG initiatives can scale; without it, even large sustainability teams struggle.

Historical Examples Where Governance (or its absence) Shaped ESG Outcomes

1. BP Deepwater Horizon (2010)

Issue: catastrophic environmental impact. ESG lens: The environmental failure was ultimately rooted in governance weaknesses — risk-taking culture, inadequate oversight, and cost-over-safety decisions.

Why it matters: Strong governance structures might have prevented one of the worst oil spills in history.

2. Volkswagen Diesel Emissions Scandal (2015)

Issue: manipulated emissions testing software. ESG lens: A failure of governance, internal controls, and ethical culture led to major environmental and reputational damage.

Why it matters:This case showed that environmental performance can be undermined completely by governance failures, regardless of stated sustainability ambitions.

3. Enron (2001)

Issue: accounting fraud. ESG lens: Though not framed as ESG at the time, Enron’s collapse remains one of the clearest demonstrations that weak governance — opaque reporting, poor board oversight, misaligned incentives — destroys both financial and social value.

Why it matters:Modern ESG governance frameworks were partly shaped by post‑Enron reforms like SOX.

4. Rana Plaza Factory Collapse (2013)

Issue: major supply‑chain tragedy in Bangladesh. ESG lens: Brands had environmental and social codes, but weak supply‑chain governance meant those standards weren’t enforced.

Why it matters:It triggered industry-wide reforms in supply‑chain auditing, worker safety, and governance of subcontractors.

5. Fukushima Nuclear Disaster (2011)

Issue: nuclear accident triggered by earthquake/tsunami. ESG lens: Investigations highlighted governance failings: inadequate risk planning, insufficient safety oversight, and weak regulatory independence.

Why it matters:Environmental and safety systems only work if governance ensures they’re updated, stress-tested, and followed.

Hong Kong Listing Rules (HKEX ESG Code) – Enforcement of governance through markets

Context: HKEX’s ESG Reporting Guide and recent upgrades brought climate‑related and governance‑related disclosures into the mainstream. Governance angle:The board is explicitly accountable for ESG disclosures and climate oversight.That shifted ESG from “CSR” teams to top‑table governance.

Impact:This regulatory governance push raised disclosure quality and made ESG part of board duties across Hong Kong–listed companies.

One-line summary

Governance is the anchor of ESG. When governance fails, the E and the S collapse with it. When governance is strong, environmental and social performance becomes durable, credible, and scalable.

Governance is always depend on people and the culture!

References and additional readings: