When talking about ESG, governance and culture are best described as the organizational structures, processes, values, and behaviors that guide how a company operates and makes decisions, specifically in relation to ESG factors. Governance encompasses the formal policies, oversight mechanisms, and accountability structures that help ensure the organization is operating in an ethical manner, such as board oversight and risk management of ESG topics. Culture is the shared values, beliefs, and practices around ESG matters, and influences how ESG principles are acted upon throughout the organization. Focusing on governance and culture can help organizations identify and manage ESG risk, attract and retain top talent and new customers, and improve their positions in the eyes of investors.

Governance and culture also help guide the company’s ESG transformation, helping to ensure that it is moving in the right direction and will come out the other end having achieved its ESG goals. In the absence of good governance, companies won’t get the buy-in and culture they need to be able to successfully navigate their ESG journeys.

Governance and culture play a critical role in attracting and retaining talent in today’s constrained labor market. In one 2023 survey, 46% of Generation Z and 42% of Millennials surveyed said they have changed or plan to change jobs or industries due to concerns about environmental impact. A company with robust ESG governance is perceived as trustworthy and ethical, while the culture instills a sense of purpose, making employees feel that their contributions extend the office. In the long run, a sense of shared purpose and community becomes instrumental in retaining talent.

At the Novice stage of CohnReznick's Sustainability Maturity Model, formal ESG structures and practices might not yet be fully established, with few clear delineations of roles and responsibilities for managing ESG impacts. There may be few guidelines or procedures in place to guide decision-making and action related to sustainability issues. However, there might be an emerging awareness; this is an early phase, but one marked by eagerness to learn and a genuine intent to grow. Leaders may be initiating conversations about ethical operations, transparency, and responsible decision-making. Novice companies will have to focus on obtaining board awareness and executive buy-in of sustainability impacts, and keep their sustainability efforts from being siloed within targeted functions or specific employees.

At the Supporter stage, there are now tangible structures in place that showcase the company’s commitment to ethical governance. Leaders are discussing and implementing transparent practices, and there is continuous dialogue, both internally and with stakeholders, about refining and enhancing these practices. Companies will generally have boards that are to some extent aware of sustainability's impacts, and there is cross-functional collaboration on sustainability initiatives, with multiple different “champions” in place and a workforce that’s beginning to understand the impact and importance of their employer’s sustainability initiatives. Cultural shifts are evident, with training sessions, workshops, and feedback mechanisms conducted more frequently, helping to keep everyone aligned with the organization’s sustainability goals.  However, in many cases there is still no clear governance structure over ESG initiatives to monitor and drive accountability and progress.

In the Gamechangers category, the culture isn’t confined to internal practices; it radiates outward, influencing partners, stakeholders, and even competitors. Ethical operations, transparent decision-making, and societal responsibility are deeply ingrained in the organization’s DNA. Gamechangers will usually have in place not only a designated corporate-level sustainability leader, but alsoleaders within each business unit or function in charge of sustainability decisions. Each ESG initiative has clear ownership and its own PMO structure – all of which are included in the board charter. The Gamechanger fosters social engagement and has deeply embedded sustainability into its corporate culture.

Novice stage: The starting point for governance 

At a high level, sustainability governance focuses on who “owns” the strategy and roadmap and how those elements are governed throughout the organization. Novices tend to have less-developed sustainability visions and fewer defined roles, and have yet to put anyone in charge of driving the vision. Sustainability is not seen as a “department” or a “role,” but rather as a side project for Legal or another department that’s already overseeing a variety of initiatives. 

Starting with sstainability awareness and education is a good first step in the right direction. This can be achieved through workshops, seminars, or introductory courses. Initiating open dialogue about the organization’s current practices and where they stand in relation to sustainability principles can highlight principles that require attention. 

Next, assign a specific person the task of making decisions on and being accountable for sustainability initiatives for the areas that require attention. Identify business leaders who can drive sustainability issues within their specific domains; and take this a step further by identifying ones who can also seek out cross-functional ways to achieve sustainability goals, thus paving a steadier path toward organization-wide sustainability initiatives.

Supporter stage: Raising awareness of sustainability

Companies at the Supporter stage are well on their way to making sustainability an organization-wide effort. They intertwine ESG principles within both organizational structures and day-to-day cultural practices, to lay the groundwork for more advanced sustainability integration in the future. In addition to having identified and deployed sustainability champions who are working on cross-functional projects and being held accountable for specific roles in driving forward their sustainability visions, Supporters tend to have clearer ownership of sustainability as a whole, and better cross-functional collaboration. For example, the marketing team may be working closely with a few different teams to drive the company’s sustainability vision and implement a host of different initiatives. Supporters also have solidified governance frameworks by integrating sustainability considerations into decision-making processes, board agendas, and managerial oversight. This could involve formalizing sustainability committees or integrating sustainability criteria into board evaluations.

To get to the next level, Supporters should move from having one sustainability professional to having a fully built-out department focused on sustainability initiatives. Don’t stop at investing in one new hire to lead the transformation; take the time now to expand the sustainability department to better cover the company’s strategic vision and goals. At the same time, keep building sustainability as a priority company-wide: Add it as a standing item on the board’s agenda, incorporate more centralized accountability at a leadership level, and take steps toward embedding an sustainability-aware culture or mindset, from holding workshops and trainings toward scheduling all-hands sustainability activities.

Gamechanger stage: CFO-led governance

When companies become Gamechangers, their finance functions take more responsibility over sustainability. CFOs are inherently skilled and uniquely positioned to materially contribute to sustainability transitions that, when done at scale, can disrupt and transform entire organizations. 

Because sustainability is so wide-ranging and far-reaching, it requires strong, cross-functional collaboration that includes motivating, engaging, and training key change leaders and employees. It is important to embed sustainability values in every aspect of the business, from product development to marketing, so that sustainable and ethical considerations aren’t just an add-on but are intrinsic to all operations. The CFO organization by its very nature already collaborates closely with the other functions within the company. This is extremely useful during sustainability transitions, when CFOs need to access data for financial reporting and to make sure the right processes and policies are in place – including internal audit functions, internal controls, and risk management, all of which are now largely handled by the finance organization. 

That’s the difference between the Supporter and the Gamechanger: When the CFO organization takes charge, the rigor and the controls that go into financial reporting processes can be applied to sustainability reporting processes.

Culturally, Gamechangers cultivate an environment where every employee, from interns to C-suite executives, views themself as a sustainability ambassador; it is embedded into the everyday practice of how employees are thinking about business. This involves advanced training, but also platforms for collaborative sustainability innovation, where teams can propose and pilot transformative projects. Externally, Gamechangers foster partnerships that challenge the status quo, collaborating with academic institutions, NGOs, or startups to co-create novel solutions. This is key to effectively tying sustainability right into corporate strategies and roadmaps, which, in turn, translates into better competitive advantage and more sustainable companies.

A proven, integrated sustainability methodology

Whether you are taking the first steps on your sustainability journey or your existing program needs an overhaul, CohnReznick can help. Using a proven, integrated methodology that combines our own sustainability experience with industry insights, we will help you effectively advance your sustainability initiative at each step of its lifecycle.

Our four-phase approach is built on value creation and impact throughout the journey, and includes

Phase 1: Assess sustainability current state, identify sustainability priorities

Phase 2: Design sustainability strategy, roadmap, and KPIs

Phase 3: Implement sustainability initiatives with governance, technology, and training

Phase 4: Validate process and data and report progress against KPIs

With a 35-year track record in community investment and shaping governance strategy, CohnReznick tailors sustainability programs to meet industry-specific stakeholder requirements. Using a process rooted in advanced data analytics and exclusive primary research, we leverage a cross-functional team that delivers seamless execution and enables fast, integrated results for companies of all sizes and across all industry sectors.