Evolving Dimensions of Environmental Corporate Governance: From Shareholder Value to Stakeholder Sustainability
Rashi Bung, Student
1: Abstract:
In an epoch where there is an environmental crisis threatening the global aspects, corporate governance and its dimensions are emerging to be the important factors that are influencing and shaping the sustainable business practices and environmental protection. In the recent years , the entire world has seen growth in the development in the corporate world with many new corporations coming up and at the same time growth of the existing ones. This paper examines the various dimensions of environmental corporate governance inclusive of the analysis of topics like what is corporate governance, how it is in relation to environmental sustainability , and the evolution of the dimensions of corporate governance for environmental sustainability. We aim at analyzing how the various dimensions of corporate governance influence and impact environmental sustainability practices in modern organizations. In today’s world companies face a lot of problems in their businesses especially in relation to the environmental and ethical issues, but as all problems have solutions , so does this and that is The Corporate Social Responsibilities of the companies.While it is necessary for all the companies to take steps towards green development and adopt sustainable practices ,it is important to note that not all the companies have the same rate of turnover, thus, the steps taken by these companies will also differ.The real world example being Starbucks and Barista, wherein starbucks has as annual turnover of Rs 1218 crore is the last fiscal year and that of Barista is around 240 core . Thus the CSR of Starbucks would differ from that of Barista .Through this paper we will also examine how the companies can respond to the various issues in ways that are good for both the business as well as the society , like the contributions towards green economy , paying of eco-taxes etc.
Key Words: Corporate Governance, Environment , Corporate Social Responsibility.
2: Introduction
In today’s world, the main goal of each company is being successful and thus in order to achieve the same, it is necessary that the companies shall focus on various areas relating to the ESG values, being engaged with the suppliers, hearing out the concerns of the stakeholders , and the most importantly implementation of sustainability wherever required so as to combat with the various climatic factors affecting the environment. Additionally , the companies shall embrace innovation and also invest in green technologies to stay ahead of the curve. Maintaining a transparent reporting system , following corporate governance and fostering a culture of accountability also plays a crucial role in driving long-term sustainable success.
- What Is Sustainability?
Sustainability is basically the practice of meeting our present needs without compromising and hampering the ability of the future generation to meet their own needs using the available resources. It requires to balance the ‘triple bottom line” that is balancing economic growth , social well- being and environmental protection .The principle of Intergenerational Equity states the 3 main things to be followed in order to be sustainable:
1: Conservation of Access
2: Conservation of Option
3:Conservation of Quality
Sustainability is the practice of achieving goals without compromising on the finite resources that are available for the lives of the future generation . Sustainability has three pillars: Economic sustainability , social sustainability and environmental sustainability.Sustainability is multifaceted.While it mostly refers to the various actions that can be taken to reduce environmental impact but it has also encouraged sustainable development.
- What Is Corporate Governance?
Corporate Governance is the system of rules , processes , procedures and practices through which a company is directed and controlled. The businesses shall adhere to the same throughout the activities done by them . In other words we can say that corporate governance is basically for creating a balance between all the parties that are involved in the working of the business like customers,the stakeholders,the suppliers,the partners,key managerial persons etc. Good corporate governance ensures fairness, accountability, transparency and responsibility in a company’s decision- making as well as their operations. It basically establishes a framework for attaining a company’s objective while managing the risks and also ensuring that the company is complying with the legal and ethical standards. Corporate governance plays a crucial part in any business as it helps from the start till the winding up that is from management , to the various plans made , measuring the progress , disclosing the data , maintaining the records etc.
The board of directors of the company are the ones who are majorly responsible for implementation of the guidelines provided through corporate governance .The manner in which the board of directors implement the rules of corporate governance plays a very important role as that helps in deciding the success of the company in the future including the financial success.
Thus the main aim of corporate governance is to provide the company with rules regulations , procedures as well as processes which the company can follow and thus help the company not only achieve their own targets but also the environmental targets , mitigating the risks attached with the business , encouraging fair use of the resources , keeping in mind the future generations and also developing improved corporate strategies.
3:Key Dimension Of Corporate Governance:
Corporate Governance has several key dimensions and these dimensions help in shaping the company’s operations and relationships with stakeholders. The dimensions are as follows:
1:Transparency: This dimension ensures that accurate as well as timely information about the company’s operations , financial performance and its environmental impact is disclosed to its stakeholders.
2:Accountability: Assigning clearer responsibilities to the board of directors and the management , holding the individuals accountable for the decisions made by them, especially those relating to sustainability and ethical practices.
3:Fairness: It involves treating the stakeholders , including the minority stakeholders and local communities, fairly and equitably.Ensures there is no favoritism or unethical advantages to specific groups,
4:Responsibility:The companies shall act more responsibly towards all of its stakeholders inclusive of the employees,customers,the environment and the community.This helps in aligning the business goals with long-term sustainable development.
Above are the 4 main dimensions of corporate governance , often referred to as the “Four Pillars” of corporate governance.The other dimensions like Risk Management , Ethical conduct and corporate integrity, ESG integration , compliance with Laws and Regulations.
4:Theoretical Foundations:
- 4.1:Stakeholder Theory Evolution: by Edward Freeman
Stakeholders are those who will be affected by and those who are involved in the operations done by the business like government , Investors, Sponsors , NGO’s, regulating authorities etc .This theory basically states that the fact that a corporation is required to serve not only its shareholders but also all those whose lives are affected by its actions.This theory is more about long-term trust, fairness , responsibility etc. This theory relies on the basis that a business succeeds best when it has interest in everyone it affects and not only those who are helping the company work financially. Traditional view of the theory lies in corporate governance beyond just the shareholders as discussed above , but overtime , the framework extended to incorporate environmental considerations , which includes the environmental stakeholders who also have legitimate claims , and including them have become a core part of sustainability strategies and thus this view helps company shift from shareholder-centric view to a more holistic approach.
- 4.2:Environmental Governance Frameworks:
Environmental Governance is basically the system which manages and protects the environment. It encompasses rules , procedures , practices , institutions etc which help in the environmental management and through these rules , policies etc the communities , the government and organisations manage and regulate human interactions with the environment.
From Freeman’s theory we see how there has been a shift from shareholder to stakeholder oriented corporate governance model which has emphasised the importance of integrating environmental considerations into core business strategies.The three main parts related to this are:
1:Fundamental to this shift , there is the Triple Bottom Line Approach . This approach is the one which balances the people , planet and the profits and thus ensuring that the growth does not come at the expense of social equity or environmental sustainability.
2: ESG integration , that is Environmental , Social , and Governance , which is a framework which helps to evaluate the company’s performance and its impact in these areas. Along with this materiality assessments have also become the key governance tools for the company.These two basically help the firms identify the environmental and social issues which are the most relevant to their stakeholders and financial performance.
3:Circular Economy Principles , is focused on resource efficiency and waste reduction which is increasingly relevant to corporate governance. This principle encourages the closed loop systems , thus moving away from the take-make-dispose model , so as to maximize resource use and also minimize the environmental impact.
By adopting these frameworks, companies demonstrate a clear commitment to sustainability, aligning business practices with stakeholder expectations and environmental safekeeping.
5:Role Of SEBI In Corporate Governance:
SEBI is the statutory authority , which monitors and regulates the working of the company , its financial working , securities market and also makes rules , regulations etc which the companies are bound to follow. It plays a crucial role in fostering corporate governance in India by setting the standards , taking enforcement actions and setting monitoring compliances for listed companies. It aims to ensure transparency , investor protection as well as accountability within the capital markets. In order to help the companies achieve these goals , SEBI has introduced several mechanisms , including the SEBI (listing obligation and disclosure requirements)Regulation 2015.
5.1:Key Aspects of SEBI’s Role in Corporate Governance:
1:Setting Standards: SEBI clearly lays down the guidelines which the companies shall follow and as to how the companies shall be governed. This includes the rules with respect to the structure of the board of the company , like the number of directors , independent director , forming an audit committee etc. Along with this SEBI also outlines what the companies must disclose so as to keep the stakeholders informed.
2:Monitoring Compliance: SEBI keeps a very close eye on whether or not the companies are following the governance norms which have been laid down for them . It requires that all the companies shall submit regular reports , like quarterly and annual financial statements , disclosure of the transactions with the related party and the corporate governance reports.
3:Enforcement Actions: If any company fails to comply with the prescribed standards , then SEBI can take enforcement actions , including suspensions , penalties or delisting of the company from the stock exchange.
4:Disclosure and Transparency: Through the SEBI LODR Regulations and the recently introduced Business Responsibility and Sustainability Reporting (BRSR) requirements, SEBI compels all of the companies to properly disclose the accurate information related to environmental , social and governance (ESG) practices. This enhances transparency and also ensures that the investors have access to the information beyond mere financials.
5:Investor Protection: SEBI’s framework is designed to safeguard the investors interests by ensuring that the companies act ethically and responsibly. It ensures that the companies are working within the rights they are given. The frameworks include provisions which help prevent fraudulent practices and ensure fair dealings in the securities market.
6:Relationship Between Corporate Governance And Environmental Sustainability:
The relationship between corporate governance and environmental sustainability run deep. On one hand, corporate governance is concerned with establishing the structure and the set of principles that govern the organization; on the other hand, Integrating environmental sustainability concerns with the responsible use of natural resources while maximizing solutions support that not endangering the ecological resources. Good governance can catalyze sustainability efforts, and bad governance can thwart environmental progress.
6.1:How Corporate Governance Can Drive Environmental Sustainability:
1:Policy mix & Strategic vision:A diligent board can incorporate sustainability into the company’s purpose, in a way that environmental targets become business objectives.Example: Companies with robust governance in place often embrace green policies such as zero-waste targets or renewable energy switches.
2:Leadership and Oversight:When boards and leadership teams set sustainability as a priority, they form ESG (Environmental, Social, Governance) committees to manage climate risks and environmental impact.There are governance systems in place to systematically monitor and enhance environmental performance.
3:Accountability and Reporting:Environmental reporting and targets (carbon emissions, water use and waste) must be transparent as a matter of good governance.Example: SEBI’s BRSR reporting norms are a function of governance frameworks, which instil environmental transparency.
4:Stakeholder Engagement:Robust governance also supports a dialogue with “stakeholders which themselves, as investors, consumers or NGOs, increasingly call upon sector companies to adopt sustainable practices”.This helps capital better align with societal and environmental aspirations.
6.2:How poor Corporate Governance Can Hinder Environmental Sustainability:
1:Short-Term Profit Focus:Short-term profit-motivated boards may refuse to heed long-term environmental risks, resulting in non-sustainable behaviour.
2:Lack of Transparency:Poor governance can lead to weak or misleading corporate environmental disclosures that make it difficult for stakeholders to hold companies accountable.
3:Weak Regulatory Compliance:Firms that can’t control themselves won’t obey environmental laws, and this in turn can result in fines, reputational damage, and ecological destruction.
4:Greenwashing Risks:Without oversight, companies can greenwash, or signal-wash, their sustainability efforts as well, to woo consumers and investors.
6.3:Examples of how Governance shapes Environmental Decisions:
1:Tata Group (India):Good Governance Both long-term water-conservation and clean-energy initiatives are made feasible by robust governance in the board structure of Tata.Their Tata Sustainability Group has also woven ESG into business strategy.
2:ITC Limited: ITC corporate board has interwoven sustainability across key business levers. Their large scale reforestation, water positive, and carbon positive programmes are examples.
3:Volkswagen Emissions Scandal (Germany):Football’s governing body Fifa, which experienced its own corruption scandal this year, will be grateful it’s not alone in the public’s bad books.The emissions cheating scandal was the result of insufficient board oversight and ethical breaches in governance, that crippled the company’s environmental integrity and bottom-line.
4:Starbucks vs. Barista (India):Starbucks, with a higher turnover and superior governance structures, would be in a position to invest in sustainable sourcing and eco-friendly outlets that smaller entities like Barista might not have the capacity to do so.
7:Corporate Social Responsibility as a Key Dimension of Environmental Governance:
7.1: What is Corporate Social Responsibility(CSR):The concept of Corporate Social Responsibility (CSR) refers to a corporation’s management of its impact as it seeks to meet not only financial but also economic, social, and environmental objectives. From an environmental perspective, CSR means taking steps such as one aimed at reducing the ecological harm done during production processes; businesses may also adopt green practices for office management.
7.2: CSR Supports Environmental Governance:The concept of Corporate Social Responsibility (CSR) refers to a corporation’s management of its impact as it seeks to meet not only financial but also economic, social, and environmental objectives. From an environmental perspective, CSR means taking steps such as one aimed at reducing the ecological harm done during production processes; businesses may also adopt green practices for office management.
7.3: Importance of Adapting CSR to Company Size and Turnover:Although CSR is a must, all companies will engage in different sorts and scales of activities according to their size and financial position. Larger companies’ higher turnovers give them more resources with which they can find scalable sustainable projects, while smaller ones may concentrate on local or low-cost initiatives. In the case of Indian companies (under the Companies Act, 2013), the CSR requirement is linked to net profits and turnover– meaning that different levels of obligation are imposed on companies depending upon their relative sizes.
7.4: Eco-Tax and Green Economy Initiatives:In line with their corporate social responsibility and environmental governance; some companies pay an eco-tax or green levy either out of choice or because regulations require them to do so. With a view to promoting environmental restoration and innovation, enterprises can utilize these funds directly. Enterprises’ investment in green economy–renewable energy, electric vehicles and recycling Where possible-linked to CSR-led strategies Results in accordance with regulations
8:Real World Corporate Examples and Comparative Analysis:
1:Starbucks Vs Barista: In the last fiscal year, Starbucks, the global coffee chain, achieved a turnover of ₹1,218 crore, compared to Barista which took in only ₹240 crore. Thanks to its larger scale entirely and stricter governance mechanisms, Starbucks has integrated quite early CSR initiatives such as ethical sourcing (via C.A.F.E. Practices), energy efficient stores…, environmental protection measures based on lowering pollution levels, avoiding waste products from the production process such as ash or carbon and reducing general business expenses. In contrast, Barista as a smaller chain operates with relatively limited provision for CSR activities, often within the scope only of community development and employee welfare programmes.good governance and financial capacity let big global firms Starbucks straighten business with environmental goals.Moreover, smaller firms like Barista may also wish to set out social responsibility plans but they must stay within environmental boundaries
2:ITC Ltd (India): One of the best-known triple bottom line corporations anywhere in the world, ITC is still able to use large amounts of water open-circulationally.Similarly, of its three major pollutants, ITC only recycles solid waste in large quantities (80%). These achievements are made possible by ITC’s own strong governance.
3:Infosys (India): A strong governance ethos has driven the company to embark on green campus initiatives, invest in renewable energy and maintain high standards of environmental reporting.
4:Unilever (Global): With its “Sustainable Living Plan,” Unilever has focused on reducing environmental impact while improving the health and well-being of peoples, serving this corporate-CSR governance integration.
9:Challenges and Opportunities for Companies in Environmental Corporate Governance:
9.1.Key Challenges: Multiple hurdles often hinder enterprises in their pursuit of organic governance. Some of the more vexing ones are the following:
A:Regulatory Gaps: C lack of environmental regulations can give little clear guidance on compliance with sustainability. Small companies may also find it hard to come to terms with the added complexity of reporting requirements.
B:Financial Restraints: Purely green technology, eco-certification, sustainable infrastructure investment, etc. frequently require considerable initial outlays. This is difficult for a small or even medium-sized company with limited access to credit.
C:Stakeholder Conflicts: Sometimes conflicting interests among stockholders, customers and environmental groups can produce a slowdown in action. And profit motives can at times override long-term ecological considerations.
D:Lack of Expertise:Organizations often lack their own sustainability experts or environmental advisers to assist with the decision-making process.
9.2.Opportunities For Sustainable Growth:Despite these hurdles, there are certainly great benefits related to implementing environmental governance:
A:Green Innovation: Companies that invest in sustainable technology (renewable energy, biodegradable packaging…) gain a competitive advantage for market share.
B:Market Leadership and Brand Value: Companies that are environmentally responsible attract like-minded consumers and investors and thus improve market position and recognition.
C:Cost Savings: Organizations achieve long-term cost savings through developing energy efficiency, waste reduction, sustainable resource use.
D:Access to Green Finance: Company behaviour related to ESG that improves allows access to green bonds, impact investing and/or sustainability-linked loans.
10:Strategies for Enhancing Environmental Corporate Governance:
For organizations to meaningfully enhance environmental governance, they can pursue endeavors such as:
1:Develop Transparent Environmental Policies: Formal policies that meet global standardization benchmarks (e.g. ISO 14001 or GRI) can promote pathways to sustainable and environmental governance.
:Integrate Green Supply Chains: When organizations adopt suppliers aligned with environmental governance by appropriate benchmarks, this leads to sustainability throughout the value chain.
3: Invest in Environmental Innovation: Relocating to cleaner production technologies, reusable materials or recyclable production systems and energy-efficient operations can demonstrate leaders’ long-term and transformative commitment.
4:Create ESG Committees: Specialized governing bodies and committees within the board can appraise environmental performance metrics, report on these outcomes, and design mechanisms to promote accountability as required.
5:Reporting and Public Communication: Reporting on sustainable practices regularly, such as sustainability reports can promote trust and transparency within stakeholder processes and provide records and benchmarks for internal reporting to assess sustainable performance.
Need for Leadership and Board Commitment:
Leadership commitment are important influencers for instilling sustainable practices. When boards and other leaders prioritize their considerations to ESG and dedicate adequate resources to conduct their environmental governance, environmental governance becomes a core issue of corporate strategy rather than a small ancillary initiative. Leadership commitment is crucial in order to facilitate cultural change and sociological impact.
11:Conclusion and Recommendations:
Environmental corporate governance is now essential, not optional, for business survival and continuity in a climate-conscience world. Companies will experience regulatory, financial, and structural challenges; however, positive outcomes—resilience, innovation, and brand loyalty—will outweigh the risks of responsible governance.
Recommendations:
1. Anchor sustainability within the core business strategy
2. Establish ESG committees detailing the capacity for environmental management
3. Customize CSR initiatives to fit for the size of company and turnover
4. Leverage digital tools to monitor and report efficiently
5. Work with government and NGO groups on best practices to develop
Looking Towards the Future:
As environmental risks and climate regulations ramp up, companies with good governance in place will lead the charge in the transition to a green economy. The future belongs to those organizations that regard sustainability, not as a cost, but rather as an opportunity for innovation, leadership, and a longer lustrous life.
12:References
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