The Systemic Interaction Between Corporate Governance and ESG: The Cascade Effect

Abstract

This chapter intends to structure the analysis, in different angles, on how corporate governance interacts with ESG (environment, social and governance) matters. Corporate governance relevance goes beyond being the “G” pillar of ESG, as one of the three criteria for responsible investment. The corporate governance system serves to prepare, adopt, execute, monitor, and enforce decisions in ESG matters. Therefore, the interaction between corporate governance and ESG is structural, reciprocal and multifaceted. Two main levels are to be taken into account: the investors’ level and the investee companies’ level.

One of the cornerstones of this analysis is the concept of the ESG cascade effect here described as the potential aptitude for companies to engage in ESG-based decisions and to systemically influence others to do so, including investors, investee companies and their respective supply chain and community.

Keywords: ESG, corporate governance, disclosure, remuneration, greenwashing, board duties, board member skills, risk management