We live in the era of that three-letter acronym ESG, and yet governance is the issue that is spoken about the least. I want us to change this. The good news is that governance is a subject that is very much top-of-mind, at least with company executives and their shareholders. Over the past decade, I have seen how governance has moved from being an unavoidable but unpopular necessity to a function that is highly valued, especially by governments, business leaders, and investors.
This change is long overdue, especially as it relates to how the region’s business environment is perceived. The aim of any governance function should be to ensure that any organization complies with all relevant laws, that its employees follow minimum standards of behavior, and that there’s a sense of accountability for all actions taken.
The drive to make governance fundamental to how we operate is bearing fruit. Today, I’d argue that the regulations companies in Saudi Arabia must adhere to are on a par with best practices from many other regulatory environments. Disclosures have been widened to include both environmental and social issues, as part of a push for ESG-related transparency. And there’s a strong demand for governance professionals among Saudi firms, both large and small.
Let’s go beyond the legal reasons why governance matters, and talk about why governance is fundamental for how we operate as organizations. As individuals, we look to deal with those we trust. Trust is based on a number of simple truths. These include, firstly, repeated interactions with others. These interactions must be honest and transparent. Finally, you build trust and reputations through doing what you promise.
This is why governance matters so much for the other two letters, E and S. Governance is the beginning of the journey to become more sustainable. Governance ensures that we are behaving in a way that is, at a minimum, acceptable and is transparent. Without these values, organizations would flounder to achieve any of their environmental or social goals.
Let me spell this out in practical terms, with an example from the Kingdom. Last year, the country’s stock market regulator, Saudi Tadawul Group, issued guidelines for ESG disclosure best practices. The aim was simple enough, namely to help the Kingdom’s publicly-listed companies adopt and stay up to date with the latest ESG practices. The regulator added that it would keep updating this guide, to ensure that it would become a “catalyst for sustainable and inclusive growth”.
The approach taken here has been to build on good governance practices and widen the focus to both environmental and social practices, and help entities understand how these areas are both interrelated and relevant to their businesses.
This type of approach makes sense for business leaders, for investors, and for governments. Going forward, I hope that good governance gets just as much attention as any other topic. If we are going to talk about anything and everything related to ESG, we must begin with getting governance right.
By: Ahmed Abdullah Al-Ahdal, Head of Governance and Board Secretariat, Ceer