How-to guide: How to understand and implement the ‘G’ in environmental, social and governance (ESG)

This how-to guide provides guidance for in-house counsel and their teams to understand and effectively develop and implement the ‘governance’ (‘G’) aspect of an organisation’s environmental, social and governance (ESG) agenda.

This guide covers the following:

What is the ‘G’ in ESG?
The importance of the ‘G’ in ESG
How to measure the ‘G’ in ESG
How much focus should there be on the ‘G’?
Practical implementation steps

It can be read in conjunction with How-to guides: Understanding environmental, social and governance (ESG) and How to implement sustainable corporate governance and Checklist: Mainstreaming sustainability into a corporate governance framework.

Section 1 – What is the ‘G’ in ESG?

The ‘G’ in ESG stands for ‘governance’. Whilst there is no universally accepted definition of governance within the context of ESG, it is commonly understood that it represents how an organisation is run and makes decisions. This includes issues like board diversity, executive compensation and shareholder rights. Good governance practices help to ensure that an organisation is run responsibly and ethically, which in turn is attractive to investors.

Even though the ‘G’ is less clearly defined than the social and environmental pillars of ESG, there are some frameworks that can be used to assess effective governance within business practices:

The Global Reporting Initiative (GRI) publishes a set of standards for responsible environmental, social, economic and governance conduct covering a wide range of topics.
The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct provide guidance to businesses on how they can minimise their adverse impacts regarding key areas of business responsibility, including bribery and corruption.
The World Economic Forum Global Future Council on Transparency and Anti-Corruption provides a useful list of factors that should be considered in implementing the ‘G’ in ESG.

The ‘G’ in ESG generally encompasses the following:

the processes through which an organisation is managed;
the standards, policy-making and procedures of an organisation;
recruitment processes;
executives’ pay and compensation guidelines;
measures in place to address bribery and corruption;
political affiliations, contributions and donations;
composition, diversity and structure of the board of directors;
shareholder engagement; and
tax strategy.

Section 2 – The importance of the ‘G’ in ESG

The ‘G’ in ESG tends to be undervalued by organisations considering ESG priorities, with a 2023 poll showing that only 26% of those surveyed thought the ‘G’ was the most important of the three pillars. Neglecting good governance practices could lead to significant mismanagement and risk the long-term success of an organisation and as such, it is good practice to include the ‘G’ as an essential component of an organisation’s ESG strategy.

When considering the synergy between the three pillars of ESG, governance is the pillar that makes the ‘E’ and the ‘S’ possible. Some examples of this are listed below.

Without good governance practices, it would be extremely difficult to ensure that human rights risks within supply chains (part of the ‘S’ pillar) are identified and remedied, as good governance practices include ensuring that there are processes in place to deal with supply chain management, the implementation of risk management strategies and compliance with supplier codes of conduct.
Monitoring the environmental impact of a company (the ‘E’ pillar) would not be possible without robust management systems in place to provide transparency on how an organisation is addressing these issues.
Ensuring a company considers gender diversity and equality is not only an essential form of good governance, but also overlaps with the ‘S’ pillar of ESG. Investors and stakeholders are increasingly investing in companies that embrace diversity.
Good governance is likely to lead to good resource management, which in turn will result in less unnecessary waste and improve an organisation’s impact on the environment (the ‘E’ pillar), as well as reduce costs.
Good governance sets the cultural tone of a business by fostering accountability, ethical behaviour and transparency. By embedding these values, organisations create a strong foundation that influences employee conduct, stakeholder trust and long-term sustainability. This cultural alignment ensures that the ‘E’ and ‘S’ pillars are not merely goals but integral parts of the organisation’s identity.

As with the other pillars in ESG, organisations that embrace good governance practices attract more investors. According to PwC’s Global Investor Survey 2024, 40% of the investors surveyed cited corporate governance as the most important non-financial measure when evaluating companies.

Aside from its importance from a stakeholder investment and ethical practice perspective, it is also important for organisations to have good governance structures in place to comply with legal obligations flowing from the constantly evolving ESG legal landscape at an international level. Some examples are listed below:

There is currently a requirement under section 54 of the UK Modern Slavery Act 2015 for certain commercial organisations to publish a Modern Slavery Statement. In the UK Home Office’s MSA Guidance, published in March 2025, it provides details on the modern slavery risk management governance that an organisation should have in place.
Under the EU Corporate Sustainability Reporting Directive (CSRD), currently in force, in-scope organisations are required to publish non-financial reporting information relating to sustainability matters on an annual basis. The CSRD requires organisations to integrate sustainability into their governance and decision-making process – including measures such as enhancing board-oversight, cross-functional collaboration, and robust governance frameworks for monitoring and reporting on their sustainability performance. The CSRD is currently under review as part of the Omnibus Simplification Package.

Embracing the ‘G’ will help ensure that an organisation is better placed to comply with ESG legal obligations, such as those outlined above. To stay at the forefront of ESG developments, an organisation will need good governance systems and processes, training for its management and employees, transparency, and stakeholder engagement. As jurisdictions around the world develop legislation relating to climate change and carbon reporting, the link between the ‘E’ and the ‘G’ is also becoming more important.

Section 3 – How to measure the ‘G’ in ESG

One of the challenges in ensuring good governance within an organisation is the fact that governance is not easy to analyse from a data perspective, as it does not have clear, scientific standards by which to measure effectiveness. Measuring an organisation’s governance strategy can largely come down to the mechanisms the organisation has in place for dealing with certain business activities. For example, ensuring that the organisation has a comprehensive code of conduct, or code of ethics for employees and stakeholders, with an accompanying mechanism for ensuring compliance with this code, is an important step towards good governance.

Other metrics that can be used to measure the ‘G’ in ESG are as follows:

establishing which policies are in place to identify and mitigate conflicts of interest between the organisation and its employees, suppliers or other stakeholders;
considering whether an organisation has comprehensive grievance and whistleblowing mechanisms for internal issues and wider human rights and environmental issues; and
reviewing the mechanisms in place to ensure that contractors and suppliers within the organisation’s supply chain are operating responsibly concerning matters such as human rights and the environment.

The presence of policies and mechanisms that ensure accountability, transparency and diversity across an organisation is a key indicator of good governance. However, it is important that these mechanisms are robust, meaningful and followed in practice and that they are not just a box-ticking exercise.

For example, in the area of diversity, it is important for organisations not only to ensure diversity in the recruitment process but also to follow up with diverse representation in leadership. The FRC’s report, Board Diversity and Effectiveness in FT350 Companies, found that when boards had higher levels of gender diversity, this correlated with better future financial performance. Measures to achieve this might include diversity training for staff across the organisation, producing management guidelines in relation to diversity and inclusion, and considering employee standards such as the BSI 76000 Human Resource that will assist the organisation with the observation and protection of workers’ rights.

Similarly, implementing a code of conduct should be backed up with grievance, disciplinary and remediation mechanisms to ensure compliance with these policies and to facilitate data gathering concerning non-compliance.

Section 4 – How much focus should be on the ‘G’?

When considering governance in an ESG context, the ‘G’ pillar tends to be overlooked when compared with the other two pillars. ‘Governance’ is nevertheless a crucial aspect of ESG to ensure responsible behaviour towards all stakeholders, ensuring compliance, transparency and accountability.

In its simplest form, governance is the process by which an organisation makes its decisions, and it impacts every aspect of an organisation. Good governance practices in general are – and have always been – likely to lead to an organisation performing more effectively, becoming more successful and achieving better growth, which has an important positive impact on investor behaviour as it drives profits and good returns. The increased transparency and accountability that good governance provides reduces the likelihood of an organisation engaging in unlawful behaviour or compliance breaches, meaning that the risk of sanctions, fines and adverse publicity is reduced.

Good governance has always been an important factor in investor behaviour, for reasons that are wider than – and predate – the ESG movement. By extension of this principle, it is clear that good governance is a key factor in enabling an organisation to have an effective ESG strategy, both in terms of its ability to monitor and develop ESG issues within its own organisation and supply chains and to keep up with the fast-paced world of ESG.

There is an ever-increasing amount of pressure on organisations to comply with new rules and disclosure standards related to ESG; for example, the CSRD, mentioned in section 2 above, which introduces disclosure standards for companies and investors relating to sustainability and climate-related issues. (See How-to guide: What general counsel (GC) need to know about environmental, social and governance (ESG) for further information).

As a result, there is a heightened interest and focus by investors on sustainability, environmental issues and human rights matters and how an organisation is equipped to reflect its commitment to these and to strengthen its ESG credentials. It is important that organisations view governance practices through the ESG lens, to drive investment as well as to ensure compliance. See, S&P Global’s report: Top 10 sustainability trends to watch in 2025.

Whilst it can be helpful to identify the key areas to focus on when considering the ‘G’ in ESG, organisations should avoid narrowing the ‘G’ to a definitive list of issues. Organisations should instead focus on having processes in place allowing for ESG factors to be relevant in all internal decision-making, reporting and strategy.

Section 5 – Practical implementation steps

The steps set out in this section identify how ensuring good governance practices can have a positive impact upon an organisation’s overall ESG performance.

5.1 – Practical steps for law firms and organisations

There are a number of steps that organisations can take to address the interplay between the ‘E’, ‘S’ and ‘G’ pillars of ESG. These are summarised in the table below.

Step	ESG Impact
Code of conduct – having a clear code of conduct that outlines the goals, values and ethics of the organisation, and what is expected of employees, suppliers and other partners, is a good way to publicly present the organisation’s values and standards.	Decisions made in relation to recruitment, day to day management of employees such as terms and conditions and disciplinary issues, and supplier relations should all take into account the code of conduct, meaning that the principles in the code are embedded throughout the organisation. Providing the code of conduct includes positive commitments in relation to areas such as diversity and inclusion, human rights and environmental impact; this will interact with both the ‘E’ pillar and the ‘S’ pillar.
Anti-corruption mechanisms – organisations should have in place due diligence and risk assessment procedures, both internally and for suppliers, regarding conflicts of interest between the goals of the organisation and the interests of employees, suppliers and other stakeholders, bribery, money laundering, donations and public procurement.	Avoiding corruption will foster more transparent relationships with suppliers, buyers and other stakeholders. This will reduce the risk of the organisation entering into business relationships with companies who have poor environmental and human rights practices, therefore impacting upon both the ‘E’ and the ‘S’ pillar.
Employee and board training – organisations should ensure that their board members and wider staff receive regular training, especially for human rights, diversity and inclusion issues, and sustainability due diligence legislation.	Staff and board members will become more aware of human rights and diversity issues, meaning they are less likely to discriminate against colleagues and more likely to report concerns about workplace bullying and harassment, or human rights issues such as modern slavery. This should improve the organisation’s performance in relation to the ‘S’ pillar. Training in relation to sustainability due diligence legislation will encourage decision-makers within the organisation to opt for suppliers who have good environmental credentials, impacting upon the ‘E’ pillar.
Review structure – organisations should have procedures in place to ensure diversity in the board of directors and other leadership roles, as well as across the wider organisation.	Accompany regular reviews of diversity with a strategy to address any failings, which in turn should lead to better diversity across the organisation and improved performance under the ‘S’ pillar.
Grievance and whistleblowing mechanisms – organisations should ensure that they have processes in place for identifying and remedying potential human rights, environmental and other issues.	Encouraging employees, suppliers and members of the public to report concerns will lead to greater transparency across the organisation and opportunities for leadership to address any environmental concerns or human rights issues in the organisation or its supply chains. This should lead to a more positive performance under both the ‘E’ and ‘S’ pillars.
Responsibility for addressing ESG impacts – organisations should identify which board or other senior organisation representatives are responsible for ESG issues, including human rights.	Centralising responsibility at a senior level reinforces the organisation’s commitment to ESG principles, enabling quicker identification and mitigation of risks across environmental, social, and governance dimensions. This ensures integrated decision-making that enhances sustainability, stakeholder trust, and long-term value.
Involving stakeholders – organisations can carry out materiality assessments of stakeholders to identify and understand the importance of ESG topics to specific groups of stakeholders.	Materiality assessments are formal exercises that identify the importance of ESG topics to stakeholders. Employees, investors and suppliers can be included, as well as those outside the organisation, such as people living in areas impacted by the organisation’s activities. Having this information can allow the organisation to shape its overall ESG strategy in a way that engages its stakeholders.
Metrics and reporting systems – organisations should develop governance structures for collecting, tracking and reporting on ESG-related data, ensuring transparency and accuracy.	Transparent reporting strengthens stakeholder trust, promotes measurable improvements on the performance in both the ‘E’ and ‘S’ pillars, and ensures accountability for social and environmental initiatives.
Performance management tied to ESG goals – organisations should integrate ESG objectives into governance systems for employee and leadership performance evaluations.	Aligning individual performance with ESG goals reinforces the ‘G’ pillar by embedding ESG accountability into decision-making processes, while driving progress in the ‘E’ and ‘S’ pillars.
Sustainable procurement policies - organisations should establish governance frameworks for procurement that include clear criteria for evaluating and prioritising suppliers’ environmental and social practices.	This embeds ESG principles across the supply chain by ensuring suppliers meet ethical and environmental standards. This strengthens accountability, reduces risks tied to poor practices, and aligns procurement decisions with the organisation’s broader sustainability and governance goals. By fostering transparency and resilience, these policies enhance the organisation's reputation and long-term value.

5.2 – Practical steps for in-house counsel to consider

A company’s in-house counsel plays a key role in assisting organisations to ensure good governance practices. These are examples in which in-house counsel can contribute towards good governance within an organisation:

Playing a key role in developing and implementing an ESG-based risk assessment framework that will ensure ESG factors, including the ‘G’, can be effectively identified, measured and addressed. In-house counsel should support the organisation to utilise frameworks and guidelines that can address ESG in a meaningful way, collaborating with the board of directors to ensure that there is a transparent and robust framework that observes all three ESG pillars. This framework should be easily accessible and utilise data and evidence to ensure that steps taken by the organisation to address human rights and environmental impacts can be demonstrated.
Understanding the laws and regulations around ESG issues, such as supply chain due diligence laws, to assist employees and the business with implementation strategies. Staying up to date with legislative changes, such as the current negotiations around the CS3D, can be a good way to assist organisations to prepare for the changing legal landscape.
Assisting the organisation to review its policies and codes of conduct, to find ways to better entrench principles of ESG into the organisation’s activities and governance strategies.
Assisting the organisation with the steps set out in section 5.1 to improve the organisation’s ESG performance across a wide range of areas.
Playing a role in ensuring that key stakeholders involved in the delivery of effective governance interact with each other and understand their various contributions.
Being aware of the corporate governance codes that pertain to the jurisdiction in which they operate. In January 2024, the UK updated the UK Corporate Governance Code 2024 which has come into effect in 2025.
Ensuring appropriate reporting structures are in place to report key issues to the board across the ESG agenda
Ensuring that there are robust governance structures in place to manage ESG risk

For further information on the role in-house counsel can play in relation to ESG issues, see How-to guide: What general counsel (GC) need to know about environmental, social and governance (ESG).

This practical resource was produced in partnership with Ardea International.

Additional resources

S&P Global, ‘What is the “G” in ESG?’
S&P Global, ‘Exploring the G in ESG: Governance in Greater Detail – Part I’
S&P Global, ‘Exploring the G in ESG: The Relationship Between Good Corporate Governance and Stock Performance – Part 2’
Natwest, ‘Talking about the G in ESG’
RL360°, ‘Governance – the “G” in ESG’
Workiva, ‘Unpacking the “G” in ESG: What Is the Secret to Good Governance?’
World Economic Forum, ‘Defining the “G” in ESG’
Vation, ‘What is the “G” in ESG: Governance explained’
Qtrade, ‘The G in ESG: Why governance matters to investors’
Alliance Global Advisors, ‘How to Measure S and G metrics in ESG’

How-to guide: How to understand and implement the ‘G’ in environmental, social and governance (ESG)

Section 1 – What is the ‘G’ in ESG?

Section 2 – The importance of the ‘G’ in ESG

Section 3 – How to measure the ‘G’ in ESG

Section 4 – How much focus should be on the ‘G’?

Section 5 – Practical implementation steps

5.1 – Practical steps for law firms and organisations

5.2 – Practical steps for in-house counsel to consider

Additional resources

Related Lexology Pro content

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Company & Commercial

Section 1 – What is the ‘G’ in ESG?

Section 2 – The importance of the ‘G’ in ESG

Section 3 – How to measure the ‘G’ in ESG

Section 4 – How much focus should be on the ‘G’?

Section 5 – Practical implementation steps

5.1 – Practical steps for law firms and organisations

5.2 – Practical steps for in-house counsel to consider

Additional resources

Related Lexology Pro content

How-to guides:

Checklists:

Quick views:

Other:

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