The “G” in ESG is key to delivering on the Paris Agreement
By Julie Becker (Luxembourg Stock Exchange)
In November, an impressive number of Heads of State, policy makers, business leaders and representatives from an array of public and private sectors gathered in Sharm El-Sheikh to discuss how the world can work together to deliver on the objectives defined in the Paris Agreement. The number one question that delegates at COP27 sought to answer was how to address the causes and devastating consequences of the rapidly changing climate. Businesses across sectors have a crucial role to play in facing the issues and escalating these efforts, and it all starts with setting the tone at the top.

In line with the increased focus on sustainable development and the transition to a more inclusive economy, environmental, social, and governance (ESG)-related issues have been making the headlines for a number of years, and rightly so. If we are to curb global warming, this will require drastic changes across our society on a political, institutional, corporate and even individual level. 

So far, the environmental and social aspects of ESG have taken the spotlight, with governance being far too often overlooked, despite it being arguably the most impactful of all three. Good governance is the driver of positive social and environmental change, while poor governance fuels social injustice and environmental disasters. It all starts – and to a certain extent ends – with the nature and quality of the governance, whether we look at a national level or in the world of business.

As ILA members would know, good governance is about fighting corruption, addressing conflicts of interest, reducing the risks of money-laundering, securing good working conditions, and providing transparency. It is about better managing companies and making strategic decisions that make sense in the long term.

But it doesn’t stop there. Given the urgency of the climate crisis, good corporate governance is also about being aware and assuming responsibility for the impact that a business or institution has on our planet and in society at large, and driving the necessary transition to make sure it contributes to our global goals. At the same time, boards and business leaders need to be able to assess the impact that climate change is likely to have on their businesses and the industry in which they operate. To raise this awareness, the right people need to be appointed to decision-making positions in the first place. New skills are also required. While in the past, in-depth financial knowledge and business and management experience would suffice to become a good director, today, directors need to understand the link between the environment, science, the economy and the world of finance. Leaders now need to take a broader look at their business and operations. Business profitability remains important, but it is essential to also look at the way in which this profit is made. Companies across sectors need to increase their focus on both reskilling and upskilling their employees. The new generation of leaders need to be given a sense of purpose, talents and decision-making power. While remaking and handing over reins of power can be challenging, it will be essential to remain competitive and to attract and retain clients and employees alike. 

Over the past few years, there has been a renewed focus on improving diversity on company boards. The EU directive often referred to as the “Women on Boards directive” was finally adopted by the European Parliament in November. As of June 2026, companies will need to ensure that women make up 40% of their non-executive directors or 33% of all directors. With more diverse boards, more perspectives and stakeholders are considered when important decisions are made. This effectively means that companies are able to better identify new opportunities, adapt to new priorities and cope with new challenges, ultimately enabling the development of solutions that help combat key issues such as climate change. Several studies suggest that with more women included in the global economy and in decision-making positions across all sectors, beyond a better financial performance, we are also more likely to see a stronger focus on both social and environmental considerations on all levels. 

At COP27, strong calls were made for a just transition. Ensuring a just transition means greening the economy in a way that is fair and inclusive for all affected groups, leaving no one behind. Each of us can contribute to this important goal, in one way or another.

There is still a long way to go, but the growing awareness around the importance of governance – whether that is in finance, business decision-making or in the rise of the conscious consumer – shows that we, as a global community are on the right path, and waking up to the realisation that good governance is pivotal to delivering on the Paris Agreement.