Podcast: Governance – the final piece in the ESG puzzle

Who makes sure your organisation does the right thing, even when no one is watching?

In the fourth and final episode of our special ESG podcast series, RiskSTOP’s Johnny Thomson is joined once again by Kerris Earle, Training and Development Manager at Zing365, to explore the ‘Governance’ aspect of ESG.

Often mistaken for little more than compliance and box-ticking, governance is where strategy meets ethics and where an organisation’s environmental and social promises are tested against its actions.

From uncomfortable questions around transparency and fairness to changing expectations across supply chains, this episode examines why governance matters to organisations of every size.

Listen in to discover what turns good intentions into meaningful progress and why the ‘G’ may be the piece that holds ESG together.

The transcript for this podcast is available below.

If you missed our previous episode on the ‘Social’ aspect of ESG, catch up here.

Stay updated and join the conversation – follow us on LinkedIn.

Transcript

SPEAKERS

Kerris Earle, Johnny Thomson

Johnny Thomson  00:01

Who is making sure your organisation does the right thing, even when no one is watching? Hello, everyone. I'm Johnny Thomson from RiskSTOP Group, and welcome to our latest Risk Acumen podcast, which offers thoughtful insight around risk management. Now, if the E in ESG focuses on the environment and the S focuses on the social, the last bit, the G for governance, is the part that determines whether any of it is real and credible, because governance is where strategy meets ethics. It's about leadership, accountability, and transparency. It's about the policies and processes that ensure organisations do the right thing, even when no one is watching. And governance, of course, is increasingly becoming a defining factor for trust, not just for regulators and investors, but also for customers, employees, and wider society. Today, I'm joined once again by Kerris Earle, Training and Development Manager at Zing365, for the final part of our four-part discussion about environmental, social, and governance risk factors. In this episode, we'll be exploring what governance really means in practice. Some of the more uncomfortable issues it raises, and the direction that regulation is taking. Hi, Kerris. Thanks very much for coming back for the final episode in our series.

Kerris Earle  01:31

Hi, Johnny. Thank you for having me again.

Johnny Thomson  01:34

So, Kerris, to frame this episode properly, let's start with the foundations. When people hear the word governance, they often think of compliance and ticking boxes and all that. But in the ESG context, what does governance really mean?

Kerris Earle  01:50

So, in the context of ESG, governance is essentially what makes everything else real. So it breathes some life into it, so you can have really strong environmental ambitions, those positive social values, but without solid governance, they don't really hold together. So the governance is about how those decisions are made around those things, how the risks associated with them are actually managed, and very importantly, how people and firms are actually held accountable. So showing really whether an organisation's actions genuinely align with its values.

Johnny Thomson  02:33

Yeah, I mean this is something I've heard you say in the past. Governance is, you've described it as, the bow that ties the E and the S together, yeah?

Kerris Earle  02:41

Yeah, absolutely. So those policies, the processes, the ethics, also the culture of a business. These are the things that turn good intentions into that consistent behaviour. And as you've already touched on, that integrity piece of that ethical behaviour happening; those values being lived, even if nobody is watching.

Johnny Thomson  03:04

Yeah. Let's start by dipping into one of the more uncomfortable governance topics: tax transparency. Why is tax becoming part of ESG governance conversations?

Kerris Earle  03:21

So, it's quite an important part of the governance pillar, as are the rest of them. There isn't any that are sort of more important than others, but it's one that I like to highlight because it's one of those, sort of, taboo ones. As you've said, it's a bit more uncomfortable to think about, but it kind of goes directly to ethics, accountability, and then also increasingly we're talking about it more and more as that social contribution, which is really where it comes to play in ESG. So historically, we think of tax; we see it purely as a technical or a financial issue or subject. It's often focused on minimising liability within the rules, whatever it may be. But ESG kind of just reframes the conversation around it in the realm of those E and S topics that we've already covered. So it goes really back to that transparency point. So is the organisation transparent about its tax strategy? Does its approach actually line with its stated values? Can stakeholders sort of understand where profits are made and taxes are paid? So it kind of asks those questions.

Johnny Thomson  04:36

Yeah, and I mean that's a good, it's a perfect example, isn't it, of that link that you mentioned before? For example, with social responsibility, if you're syphoning all of your money away into offshore, and it never passes into infrastructure investment or health services or anything like that, well, yeah, there is a lack of alignment.

Kerris Earle  05:00

Yeah, absolutely. Especially when you're thinking about that wider environmental and social parts coming together. When we're thinking about actually highlighting, in particular, say, climate change and the impact on our infrastructure in the near. Well, currently we're seeing it happening, but in the future, the risks associated with that for communities, and then thinking as well of the health-related impacts that can come from that, also sort of highlights the need to align with those wider values. And again, it's kind of actually putting your money where your mouth is, essentially, isn't it?

Johnny Thomson  05:38

It is, yeah. And am I right in thinking that there's legislation coming through in the EU requiring disclosure of tax strategies, you know, particularly for larger business. And what what impact do you actually think this will have?

Kerris Earle  05:50

So we're already sort of seeing firms are publishing their sort of tax strategies, principles, and governance frameworks. There's some case of country-by-country reporting. So in the UK and Europe, this is currently actually mandatory for very large businesses. Yeah. So this is things like a firm in the UK having a previous year turnover of 200 million plus, or a balance sheet of 2 billion pounds. Now that doesn't pull in every business at all, but it's those sort of larger ones. So they've got to actually put sort of their tax strategy or that governance framework onto their websites so that they're accessible. You'll sort of see them down at the bottom of a website with the modern slavery statements in the EU and their sort of country-by-country reporting; I believe it's businesses pulled in that have a turnover of over 750 million euros. So significant-sized firms being sort of pulled in to that mandatory side of things. But there are some businesses that are sort of choosing to be more open because they sort of recognise not only the trust benefits but also that sort of reputational piece as well.

Johnny Thomson  07:09

Legislation often starts off at that point, doesn't it, and then flows down.

Kerris Earle  07:12

Oh, absolutely. Yeah, trickle-down effect, isn't it?

Johnny Thomson  07:17

Yeah, yeah. So definitely, definitely an area to watch. Another governance area that often exposes a gap between intention and action is pay disparity. What kind of pay gap issues are most prominent right now, Kerris? So this

Kerris Earle  07:34

is one of those sort of areas that we highlight in relation to governance as again sort of uncomfortable areas to talk about because they they do increasingly sort of link with trust and credibility, not just that compliance piece. And so we know our gender pay gap reporting that's been mandatory for a number of years now. I believe since 2017, yet any actual progress coming from that reporting has been slow. It doesn't mean that there hasn't been any sort of progress in shortening that gap or trying to bridge it, but it has been quite slow in some industries more than others. But what we are now sort of seeing is a growing voluntary reporting on things like ethnicity and disability pay gaps. So that reporting isn't mandatory yet, but some businesses are just choosing to do this to get a much more accurate picture of what's actually happening across their business, getting a better understanding of that sort of difference that can be seen in actual pay to individuals based on that sort of diversity within our business, and that sort of voluntary alignment is itself sort of a governance signal. It shows us a willingness to look at what can be uncomfortable data and actually act on it. So it's not just that sort of publishing those numbers because we've got mandatory reporting requirements and then just sort of moving on. It's more about what a leader's doing next. How is accountability actually being applied, and is there actually any change that's following from that as well?

Johnny Thomson  09:24

Yeah, but I guess it's probably still a significant minority that are doing that, particularly around ethnicity, disability, and sexuality that you've mentioned. So why, why, why, why are there still not that many visibly dealing with this across many organisations,

Kerris Earle  09:42

I think that's a really good question, and I guess it is to do with the data available. If it's not something that we're sort of requesting, it's harder. It could be they find it sort of difficult to get that data when actually it's not a mandatory report. And again, it could be maybe they don't see an opportunity to be able to do that without it being mandatory. I wouldn't be able to say exactly why. It's just that it's only a few sort of businesses that are sort of aligning themselves with that.

Johnny Thomson  10:15

Yeah, and flowing on from that, do you think therefore that regular regulatory intervention almost becomes inevitable if organisations, if many organisations, kind of don't jump in here.

Kerris Earle  10:28

I think absolutely potentially it may it may well very much be on the cards, sort of following on from that sort of pay gap data that we've now had for almost 10 years, that sort of mandatory reporting it is all sort of sits very firmly and well within the space of DEI and actually getting a real good picture of what that actually means outside of just being a policy that businesses have.

Johnny Thomson  10:57

And of course, some governance topics feel more familiar to, well, to you and I, for example. You know, in working within financial services, insurance, and so on, things like anti-corruption, market abuse, financial crime, and so on. How do these fit into ESG and governance in particular?

Kerris Earle  11:19

So they fit in because it's all about that sort of it's that business ethics, and it is sort of thinking about that wider sort of social contribution. So, for example, thinking about our anti-money laundering and preventing the furtherance of financial crime and things of that area, and anti-bribery and corruption. There's a wider societal benefit from actually those things being implemented outside, of course, of the legalities of having to do that as a business. It is that wider sort of societal contribution to ensuring that those things are being adequately mitigated, prevented, managed, whatever way it is we sort of want to to look at it, and that governance, as you've touched on that compliance point, we're very sort of well versed in it within financial services, within insurance, and we do hear time and time again it is it is not just those sort of documents or policies or processes that we've got around this, that governance and oversight and compliance sort of shows up in everything that we do, from sort of how we oversee our partners, cover holders, whatever it may be, how we're designing things, how we're handling risk. So it all shows up. It's all part of that wider thing we do. So it does actually put financial services firms in in a good position to be able to sort of deal with the governance aspect of ESG.

Johnny Thomson  12:50

Yeah, and I mean we've talked about that point previously about reputational risk, and we've mentioned trust quite a few times already in this episode and in previous ones, and it all relates back to that, of course, doesn't it?

Kerris Earle  13:00

Absolutely. Yeah, it does very much go back to that piece, as we know, sort of that reputation is one of the best assets that a business can have, and it's it can take years and years to build and seconds to sort of fall apart.

Johnny Thomson  13:16

Yeah. Now, would you say that governance is the part of ESG where, and I mean, it's up against some competition here, where organisational culture is most exposed.

Kerris Earle  13:29

Oh, absolutely! I think, yeah, as she said, there's some other sort of contenders for this, but yeah, it is one of those areas where it really sort of shows up. It's that transparency piece. If we're saying that we're doing certain things, our governance programmes are going to show whether that's actually being lived or not, whether that's actually understood. And governance itself within a business is entirely dependent on people. It's entirely dependent on the culture of the business as well, so there needs to be that sort of understanding of what's expected throughout the business, clarity of who's got responsibility and accountability, confidence in sort of challenging and escalating, and really sort of breathing life into those policies, those processes in sort of real-world scenarios. scenarios,

Johnny Thomson  14:23

and because governance really does expose those organisational culture elements, they're often things that are inquired about, that are asked for. And I'm thinking in particular about small to medium-sized businesses in that relationship that they have with larger organisations; I think you and I are probably familiar with this as well. Being from the kind of organisations that we are, you know, our expectations around governance are increasing landing on smaller, smaller businesses, and and and that happening through procurement and supply chain requirements. Do you think?

Kerris Earle  14:59

Yes. Absolutely. So we're seeing sort of the legislation, the directives, regulation, whatever it may be that's sort of coming around in this space or developing within the world of ESG or wider sustainability. That sort of it's pulling in those those big corporations, those big multinationals with those big turnovers that we've already sort of touched on, but but it does absolutely pull through that sort of trickle down effect SMEs in as well, because that sort of governance that's mandated for a number of those larger firms is extended across the whole value chain, so upstream and downstream for those businesses. So they're expected to understand and manage risks within their suppliers, their partners. So that means SMEs are being asked questions about their governance, about their ethics, and the wider sort of ENS areas as well, and sometimes for the first time. So there's a real impact on those SMEs, and again, it kind of can highlight sort of the good governance of those firms being pulled in that they're able there to actually start offering clarity, support, collaboration with their partners, because SMEs often don't sort of lack intent in these areas. They're smaller. They typically lack time, and they lack resources, so those organisations that are sort of larger pulled into this, these requirements, these regulations, can really sort of help partnering to build that capability to actually help those businesses that they work with to fit the requirements that they now need in line with their sort of wider ESG considerations.

Johnny Thomson  16:44

Yeah, so there's kind of a responsibility there, almost as what you're saying that the large corporates have to not just, you know, throw a tick box.

Kerris Earle  16:53

Yeah, absolutely

Johnny Thomson  16:55

at the smaller firms that they work with, but yeah, but help them, support them in meeting their governance and their ESG expectations, yeah.

Kerris Earle  17:02

Yes, absolutely.

Johnny Thomson  17:04

Let's talk a bit more about regulation, Kerris. You've highlighted to me before a major change: the EU Corporate Sustainability Due Diligence Directive (CS Triple D), I think, is that, is that the right?

Kerris Earle  17:18

We love an acronym. Yeah.

Johnny Thomson  17:22

So, what is it, and how important is it?

Kerris Earle  17:27

So, I'll give you a real short summary on what it is, sort of top level. But it is. It's very important. It's it's very significant. So, the CS triple D is sort of a major shift in sustainability regulation and directives, it's it's currently going through its sort of implementation phases, which is sort of split up over a couple of years in the EU. So it is separate to us, but it does impact the UK, as I'll touch on in just a moment. But essentially, it requires those firms that are in scope again. That is those larger corporate businesses, but it requires them to be managing their environmental, their social, and their governance risk, and that is across their entire value chain. So that means it's not just within their own operations; that goes back to the point we raised earlier of SMEs being sort of trickle-down, pulled in. So even though it's targeting those sort of larger organisation, that impact does flow to our smaller businesses, who may now also be asked to sort of demonstrate the same standards, and that's around labour ethics, human rights within the value chain and supply chain, as well as their sort of sustainability endeavours. Now, what makes the CSD so sort of significant and this shift is that it has real penalties for non-compliance. So, this is one that actually finds. So it's not comply or explain; it's comply or pay.

Johnny Thomson  19:10

Yeah.

Kerris Earle  19:10

So a very significant sort of shift through realms of sustainability legislation. So it is again. It sort of highlights that need for collaboration, working together on sort of due diligence, and when it's sort of done well, again, it goes beyond that sort of realm of just being another tick box, another compliance element. It's actually a chance to sort of not only strengthen those partnerships, but also build that sort of long-term sustainable supply chain.

Johnny Thomson  19:41

Yeah, I mean, it almost brings everything that we've just talked about in the last few questions together, doesn't it? It's it's it's something which is going to apply to those those much larger firms, but as you say, that's going to trickle down and have impact. So no, no one should just dismiss this as this is this is nothing to do with me, but because, you know. The pain point that could be felt in terms of those significant fines and so on as well are going to fall to those larger organisations. Then there is going to be increased pressure on the smaller partners and so on to to meet those meet those compliance standards. And yeah, yeah. So it, it yeah it sounds like it's something that's very important for everyone to understand and to and to know what those what those requirements are going to be.

Kerris Earle  20:26

Absolutely, absolutely. And the thing is, it it can be it can feel quite sort of overwhelming having to sort of comply with these aspects, whether it's sort of mandatory or if we're voluntary, voluntarily aligning ourselves with them, but I think there's something that I've repeated before in our sort of previous sessions, and it's worth repeating again in that sort of the message of progress, not perfection, and it's such an important aspect of all ESG endeavours. So, ESG sort of governance isn't about having everything solved today. It's about being able to show awareness of risk, that we've got a plan to address them, and that we can sort of evidence. We've got evidence, sorry, of that learning and also improvement around it. And again, there's interest in that honesty, that transparency, and that momentum, rather than there just being sort of polished claims or lip service that don't really stand up to any scrutiny.

Johnny Thomson  21:32

Yeah, and to be fair, I think we've seen that approach from regulators as well. When I think about data protection or even consumer duty, it's kind of been phased, hasn't it? The approaches have been one of let's give time for learning, for understanding, for processes to be put in place before, you know, ultimately coming down heavy-handed on maybe one or two certain examples. But the attitude of the regulator seems to have been one of, let's give people the opportunity to demonstrate that they have been at least trying to do something here, rather than just, you know well, you're not compliant, so there you go, fail, yeah

Kerris Earle  22:11

Yes, yeah absolutely. It's that sort of learning; it's all part of that if we're thinking about businesses being more sustainable, more resilient, more prepared for the risks that sit within the ES and G. That's what it's all about. That awareness. What are we doing to mitigate and understand those impacts, and what plans are we putting in play, and how are we sort of working towards that endpoint?

Johnny Thomson  22:37

Now, to finish up, if you could leave listeners with one governance priority, it's one of those typical kind of questions, really. I know there's always more than one priority, but one practical action that they can take around governance. What would it be?

Kerris Earle  22:56

So it would really be start with people. If people don't understand the policies, the processes, the procedures, and don't understand why they're needed, they're not going to be embedded, and they're not going to be lived. And that's where that culture piece really comes into play. When employees, when staff, whoever it may be, understand what's actually expected of them. They're supported in the right way. That governance becomes part of their day-to-day decision-making. That helps us in better actually implementing those policies. Again, going back to them being breathed in, actually being lived policies rather than just documents. And that goes from it from being something that's abstract to actually something that's embedded, and it's one of the things that can sort of be missed or just not given enough attention whenever we're talking about anything to do with governance, risk, or compliance.

Johnny Thomson  23:53

Brilliant, excellent, and look, I think it's only fair, you know, after all you've contributed over the various episodes that we've recorded together, that I ask you one final final question. So, tell me, Kerris, how can Zing365 support organisations with things like training, compliance capability building and so on?

Kerris Earle  24:18

Yeah, absolutely, brilliant question. Thank you, Johnny. So we are at Zing365. We are an insurance CPD training solutions provider. So we sort of pride ourselves on being a one-stop shop for CPD needs. So sort of supporting firms across topics including ESG, wider compliance risk, and we also, of course, have technical insurance training, leadership, soft skills, and business skills. All of those areas that are sort of needed for that competence within what are often quite complex and complicated roles and responsibilities. We pride ourselves on offering a blended Learning approach, so that just means that we combine the learning styles and the learning offerings that we have. So we've got online e-learning, libraries of over 300 relevant topics. We do face-to-face training, live learning webinars, as well as short, focused, what we call just-in-time micro learning, and that's all to sort of reflect the diverse learning styles and needs that, of course, we all have. We all learn differently. Some of us like to read. Some of us like to see a 10-minute video, or it may be that we've got a lack of time, and that that's better for us. But of course, we just like to be able to fulfil those needs, but it's just all about that developing, assessing, evidencing that competence, whilst sort of supporting that regulatory assurance. Of course, we're a very highly regulated industry, but also that people part. So, career progression, professional and personal development, and really importantly for the whole of the industry, that talent retention piece as well.

Johnny Thomson  26:07

Superb! And where do people go to find out more?

Kerris Earle  26:10

So go to our website, that is zing365.co.uk. You can also find us on LinkedIn. Do also search for myself. If you've got any queries, it's always great to link up. But yeah, you'll find us there.

Johnny Thomson  26:27

Brilliant. Well, Kerris, once again, you know this has been a brilliant conversation, and I hope you know insightful for our audience as well. A really, really strong way to conclude the series. So let me just say thank you so much for all of your input here. I think overall we've got around two hours of content for people spread over the course of four conversations around ESG. And you know, honestly, I've enjoyed every minute of it, and I hope you have too.

Kerris Earle  26:53

I have very much so, Johnny.

Johnny Thomson  26:55

I've also learned a lot as well. So thank you very much for that. So yeah, Kerris, to wrap up, thank you once again for joining us. Greatly appreciate.

Kerris Earle  27:05

Thank you.

Johnny Thomson  27:07

And that's all for this episode of RiskSTOP's Risk Acumen podcast. If you have any questions or comments around the topics we've discussed today or any of our other risk-related content, please head to the RiskSTOP LinkedIn page. You can find a link to that at riskstop.co.uk. Thank you very much for listening in, and until the next time, goodbye for now.