ESG – governance

Governance, risk and compliance are the foundation of trust in any business and are essential in underpinning ESG, helping enhance transparency, accountability and sustainable growth.
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The G in ESG stands for governance. It relates to the processes and procedures that businesses must have in place to successfully manage their impact on people and the environment.

Good governance drives strong leadership, transparency, accountability and ethical decision-making, which are the backbone of successful ESG. It is key to embedding ESG across organisations and in mitigating risks, seizing opportunities and progressing towards a sustainable future. It is what all stakeholders from regulators to investors, customers, supply chains and employees are looking at.

ESG is a key strategic risk for businesses

A combination of factors including the fast-changing landscape, patchwork of regulations and increasing requirements from diverse stakeholders is making ESG a key strategic risk for many businesses.

Businesses must now:

  • Identify and understand the ESG risks they face and establish a strong internal control environment to manage these
  • Successfully navigate regulations, staying up to date and developing comprehensive strategies to ensure ESG compliance
  • Align governance structures with good practice and regulatory requirements
  • Develop and implement policies that promote diversity, inclusion and equality
  • Understand and manage the ESG impact of their extended supply chain

Those businesses that successfully navigate regulations, identify risks and develop effective ESG strategies are far more likely to perform well, attract and retain employees and appeal to investors. Critically, they are also better equipped to withstand emerging risks.

The spotlight is on greenwashing

What is greenwashing? It’s where a business exaggerates or makes false environmental claims about its products, services or the way it is run. All businesses are under scrutiny for greenwashing but since the FCA’s (Financial Conduct Authority’s) anti-greenwashing rule came into force on 31 May 2024, it has become particularly relevant for financial services firms.

The FCA rule aims to root out greenwashing among financial products and services and clamp down on mis-selling by requiring all references to sustainability characteristics to be ‘fair, clear and not misleading.’

If you’re a financial services business and you’re not yet compliant with the anti-greenwashing rule, now is the time to act. The FCA is doubling down on compliance and inaction could lead to stiff penalties, including fines and public censure. 

Fraud-prevention responsibilities are increasing

The failure to prevent fraud offence is another key piece of legislation that aims to enhance the ethical and responsible conduct of businesses. It comes into force on 1 September 2025 and will see large organisations face criminal liability for fraud committed with the aim of benefitting them.

This new legislation marks a huge shift for businesses that are used to concentrating anti-fraud measures on fraud committed against them rather than for their own benefit. You’ll now expose yourself if fraud is committed by employees and those associated with your business – such as subsidiaries and third-party service providers – unless you can demonstrate that you have reasonable preventative measures in place. 

Tax governance and compliance are critical to ESG

How a business approaches its tax obligations speaks volumes about its commitment to transparency, fairness and responsible corporate behaviour, which is why tax governance, compliance and risk management are critical to ESG. Strong tax governance supports businesses in contributing fairly to society and building trust with stakeholders while also safeguarding against financial and reputational risks.

Strong tax governance stems from a well-defined tax strategy and a robust tax risk management framework, however the complexity of tax and evolving regulations makes building these far from straightforward. Businesses must understand their obligations, including new taxes in support of climate targets, and comply with a wide range of HMRC regimes designed to promote responsibility and tax compliance. These include:

The SAO regime is central to tax governance. It ensures that large businesses have appropriate tax accounting arrangements in place and that a Senior Accounting Officer is appointed to take responsibility for these. Businesses must notify HMRC of their nominated SAO each year, and the SAO becomes personally liable for the tax accounting arrangements and for the annual certification to HMRC.

Under the CCO, HMRC can hold businesses – of any size – criminally responsible for failing to prevent anyone acting for or on behalf of them from facilitating tax evasion. The CCO places the onus on businesses to implement reasonable prevention procedures but even though the legislation was introduced in 2017, many businesses have yet to respond adequately. 

How we can support you with ESG governance

With specialist teams across tax, risk advisory and forensic services, we understand the scope and complexity of governance, risk and compliance across ESG and can work together to provide all the support your business needs wherever you are on your ESG governance journey. This includes:

  • Supporting the design and development of ESG strategies and governance structures
  • Designing and implementing controls, processes and technologies to support internal and external ESG reporting and non-financial disclosures, and providing independent assurance against ISAE3000 and ISAE3410 for sustainability reporting and greenhouse gas reporting
  • Helping with the assessment and management of ESG-related third-party risks
  • Advising on tax governance and compliance obligations
  • Building a strong tax risk management framework and improving tax processes and controls
  • Documenting key tax processes and controls to support SAO compliance and provide evidence to HMRC as part of its Business Risk Review
  • Supporting with financial investigations, for example into greenwashing or fraud and subsequent improving of processes and controls

Take the next step by booking your free ESG health check

During this workshop-style health check, you’ll get the opportunity to discuss your business and ESG journey with our expert team. We’ll help you:

  • Define your challenges and opportunities
  • Establish your key priorities in relation to governance and, where relevant, across environmental and social areas
  • Identify the next steps on your ESG journey
Book your ESG health check online now