While Environmental and Social issues often get the headlines, Governance (G) is the foundation that makes the other two possible. It refers to the internal system of rules, practices, and processes by which a company is directed and controlled. Foundation for E & S: Without strong oversight, environmental and social goals often lack the accountability needed to succeed.
Risk Mitigation: Good governance helps prevent scandals (like Volkswagen’s emissions issue or Wells Fargo's fake accounts) that can cause stock prices to plummet.
Investor Confidence: High governance scores are often a prerequisite for institutional investors, as they signal lower risk and better long-term management.