ESG stands for environment, social and governance. It is concerned with making proper assessment of a company’s corporate government practices, and environment and social impact of its operations.
Corporate governance refers to the framework (internal controls, checks and balances, incentives) which define the rights, roles and responsibilities of different stakeholders of a company and minimize and manage any conflicts of interests.
Corporate governance structures are guided by two theories: the shareholder theory, which posits that those charged with corporate government should promote the interest of the company’s shareholders; and the stakeholder theory, which argues that there are stakeholders other than shareholders, such as employees, customers, etc., and that a balance is needed between their rights and responsibilities.
Globally, there is a greater realization to create a sound corporate governance structure and strengthen internal controls. Even though there is considerable diversity in the nature of corporate governance frameworks, the trend is towards increased convergence.