When talking about corporate sustainability, the acronym “ESG” (Environment, Social, Governance) is often used. It represents the three dimensions through which companies are asked to measure and improve their impact.
While environmental and social aspects have become familiar even to small and medium-sized enterprises (SMEs), governance often remains an abstract concept or a set of rules that seem relevant only to large corporations.
In reality, governance is what allows the environmental and social pillars to translate into concrete actions: it defines who makes decisions, clarifies roles and responsibilities, and ensures open and transparent communication with stakeholders.
What the “G” in ESG means (and why it matters more than it seems)
Governance refers to the framework of principles, rules, and processes that guide how a company is directed, managed, and held accountable.
When governance is weak or absent, business decisions risk being based solely on intuition or the personal preferences of leaders, without clear processes or defined responsibilities. This can lead to confusion about roles, conflicts of interest, unethical behavior, operational inefficiencies, and potential regulatory violations.
Clear and structured governance, on the other hand, means setting out transparent rules and processes, basing decisions on objective data, and managing risks proactively. This approach strengthens the trust of customers, suppliers, and financial institutions, who can clearly assess how the company operates, and helps make the business more credible and competitive in the market.
Key governance topics and indicators
Effective governance relies on transparent rules, clear accountability, and robust internal controls. The themes and indicators below provide a framework for evaluating its effectiveness and pinpointing potential areas for enhancement:
- governance structure: composition of decision-making bodies, presence of independent members, gender diversity, and range of competencies;
- business ethics: adoption of a code of ethics, anti-corruption and human rights policies, guidelines for responsible supplier management;
- regulatory compliance: number of legal violations, sanctions, or disputes, and the presence of mechanisms for reporting and addressing irregularities;
- remuneration: criteria for determining pay and analysis of pay gaps between men and women or between managerial and non-managerial positions;
- stakeholder engagement: frequency and methods of consultation with relevant stakeholders;
- cybersecurity and data protection: active policies, internal training, and number of reported incidents;
- transparency and communication: quality, accuracy, and timeliness of information shared with employees, customers, suppliers, and other stakeholders, ensuring consistency with company values and objectives.
Five ways to strengthen governance in your company
Effective governance is built through concrete tools. Here are five ways to make it an integral part of your company’s management.
Sustainability report
A sustainability report measures and communicates your company’s impacts, not only in terms of governance but also environmental and social performance. It provides a clear overview of the practices adopted and highlights areas for continuous improvement.
Ideally, it should be prepared annually to track progress and update stakeholders on results achieved. Companies can follow recognized reporting standards such as the GRI (Global Reporting Initiative), which specify what data to collect and how to communicate it.
Corporate policies
Corporate policies translate company values into clear, shared rules that guide everyday decisions and behaviors. Through these documents, the company defines how it intends to operate ethically, transparently, and responsibly, providing guidance both for senior management and employees.
Examples of policies include a code of ethics and specific policies on anti-corruption, diversity and inclusion, health and safety, environmental protection, and supplier relations.
Internal and external audits
Audits evaluate how effectively a company’s policies and procedures are implemented. They can be performed internally by company staff or external consultants, or externally by external auditors or accredited certification bodies.
In both cases, the audit process involves collecting and analyzing objective evidence through document review, interviews, and direct observations. The findings can then be used to identify strengths, nonconformities, and opportunities for improvement, enabling the company to update its procedures accordingly.
Whistleblowing mechanisms
Reporting mechanisms allow employees to raise concerns or report potential misconduct such as incidents, harassment, safety breaches, or unethical practices. These systems help the company identify risks early and take timely corrective action. In Italy, having a whistleblowing system is mandatory for public entities and for private companies with at least 50 employees.
Reporting channels may include a dedicated email address, a secure online platform, or an appointed internal contact. What matters most is that they are easy to access, ensure confidentiality, and protect individuals who report concerns from any form of retaliation.
Certifications
Certifications are a practical way to enhance the credibility and transparency of corporate governance. Achieving recognized standards—such as ISO 9001 for quality, ISO 14001 for environmental management, ISO 45001 for workplace health and safety, or SA8000 for social responsibility—demonstrates your company’s commitment to international best practices and to the continuous improvement of its processes.
How we can support you
Addressing governance and sustainability issues requires expertise, methodology, and concrete tools. With the right support, however, it can become an opportunity for your business.
Kyklos Carbon guides your company through every stage of the ESG journey, from drafting a sustainability report to defining actions and strategies to strengthen governance and enhance social and environmental performance.
Contact us to build a tailored sustainability pathway for your business.
How to integrate governance into your company’s ESG strategy