Governance: ESG’s Forgotten “G”

Two Dutch NGOs, an Australian pension fund member, and 17,000 citizens have already done what most ESG reporting frameworks still struggle to: Force boards to treat climate risk as a governance matter, not a communications exercise. In the ESG conversation, the “E” gets the headlines — carbon footprints, transition plans, green taxonomies — and the “S” is catching up fast through human rights and supply-chain due diligence. The “G,” governance, is too often treated as legal housekeeping in the background. Yet governance is the load-bearing element: without an engaged board, aligned incentives, and documented accountability, a company’s climate strategy is a statement of intent, not a control system. France’s financial regulator has just reminded its market of that principle, at the same moment courts elsewhere are making it a matter of personal exposure for directors.

Why governance, not disclosure, is the real test of climate accountability

In May 2021, the Hague District Court ordered Shell to cut its global carbon emissions by 45% by 2030 relative to 2019 levels, across its own operations and the products it sells. Shell appealed, and in November 2024 the Hague Court of Appeal set that specific order aside — but, as recorded in the Sabin Center’s Climate Litigation Database, the appeal court did not dispute that Shell owes a legal duty of care to help prevent dangerous climate change; it simply declined to impose a court-specified reduction percentage. Along the way, Milieudefensie sent a formal letter to Shell’s board warning directors personally of liability risk for failing to act on the 2021 judgment — a warning that treated the board, not just the company, as the accountable party.

Australia produced an equally instructive case from the other direction: fiduciary duty rather than tort. In 2018, pension fund member Mark McVeigh sued the trustee of the AU$57 billion Retail Employees Superannuation Trust (REST), arguing the trustee had breached its fiduciary duty by failing to adequately assess and disclose climate-related financial risk to members’ retirement savings. As the Climate Litigation Database records, the case settled in November 2020, with REST formally acknowledging that climate change is “a material, direct and current financial risk” to the fund and committing to a net-zero investment target by 2050. Coming on the eve of trial, the settlement stopped short of a binding legal precedent — but it put every pension trustee, fund manager and, by extension, every board relying on similar governance structures, on notice that fiduciary duty now has a climate dimension.

Neither case turned on executive pay. But both turned on the same underlying question that climate-linked compensation is meant to answer at board level: does governance actually track, document and act on climate risk, or does it merely describe intentions in a sustainability report? Ksapa’s analysis of the fiduciary responsibility of boards facing climate, digital and inequality risks frames this directly: mapping and building board-level consensus on material ESG issues is no longer a communications exercise, it is a condition of the company’s legal resilience. Ksapa’s related piece on board duties and ESG oversight of climate and human rights risks makes the same point in fiduciary terms: tying executive pay to ESG metrics is one of the more concrete ways directors can evidence that they are actually discharging — not just declaring — their duty of care.

It is against this backdrop that France’s own governance refresh should be read. On 4 August 2026, the Autorité des marchés financiers (AMF) published an updated and streamlined version of its consolidated governance and executive-pay recommendation, DOC-2012-02. Per the AMF’s official announcement, the refresh pursues three goals: updating the doctrine with lessons from the AMF’s 2024 and 2025 governance reports (director independence, succession planning, departure indemnities, honorary chairperson roles); streamlining it by removing 45 items already absorbed into the AFEP-MEDEF Code or the Haut Comité de Gouvernement d’Entreprise’s application guide; and reorganising the text around the code’s own thematic structure. The regulator is explicit that removing an item absorbed into the industry code “does not constitute a renunciation” — market-wide governance expectations continue to apply, just through a different vector.

Two specific transparency requirements matter here because they carry real evidentiary weight. The first: companies must specify, objective by objective, the actual level of achievement reached on every quantifiable variable-pay target. The second: boards must clearly justify any significant shift away from the originally set qualitative-to-quantifiable ratio, in favour of qualitative judgment. Neither is new in 2026 — both first appeared in the AMF’s 2017 annual governance report and have since been consolidated into DOC-2012-02. The 2026 refresh reorganises and clarifies them; it does not invent them.

Climate criteria are now a governance-code norm, not an ESG add-on

The substantive trigger for climate-linked pay in France predates the AMF’s 2026 refresh by nearly four years. The December 2022 revision of the French AFEP-MEDEF Code, applicable to shareholder meetings covering financial years from 1 January 2023 onward, specified that executive compensation must include, among its ESG criteria, at least one tied to the company’s climate objectives, with quantifiable criteria favoured wherever measurable.

This is not a uniquely French story. As climate-related financial disclosure converges internationally around the IFRS Foundation’s ISSB standards, and as more jurisdictions experiment with formal “say on climate” votes alongside traditional “say on pay,” the underlying governance question is the same everywhere: does the board that sets executive incentives actually own the climate risk those incentives are meant to manage, or has that ownership been outsourced to a sustainability function with no real authority over pay design? France’s answer — a governance code, a regulator’s doctrine, and now a court willing to treat vigilance obligations as enforceable rather than aspirational — is one model. It will not be the only one, but it is a useful stress test for boards elsewhere asking how their own governance would hold up under similar scrutiny.

For boards, the deeper stake is not whether a climate criterion exists — it almost universally does now — but whether governance can evidence that the criterion is real. Ksapa’s piece on boards’ climate leadership beyond COP-cycle governance argues that as international climate-policy coordination grows less predictable, boards that have already built robust internal accountability — including through remuneration — are better placed to sustain commitments regardless of the external policy weather. That is the essence of governance as the load-bearing “G”: it is what survives when external conditions shift, precisely because it is built into internal structure rather than external messaging.

What boards must actually govern, not just disclose

Translating this into practice means structuring governance, not just reporting, around three layers. The first is the definition of the climate criteria themselves: are they quantifiable and anchored to a greenhouse-gas reduction trajectory, or built on softer, harder-to-verify qualitative judgment? This connects directly to the double-materiality exercise increasingly required under EU sustainability rules. Ksapa’s guide on mapping impacts, risks and opportunities through a double-materiality lens argues that climate criteria chosen for executive pay should flow from the priorities identified in that mapping, rather than be selected independently of it — and therefore be legally defensible rather than cosmetic, a distinction Ksapa also develops in Understanding the Concept of Double Materiality.

The second layer is measuring actual achievement. The AMF’s standing requirement — specify, objective by objective, the level of achievement reached, not just the aggregate bonus paid — depends on robust data governance. Ksapa’s overview of how the CSRD is reshaping board-level ESG accountability explains that under the European Sustainability Reporting Standards, governance disclosures sit under a dedicated ESRS G1-G4 cluster — giving boards a structured place to house exactly this evidence trail. Without reliable, auditable climate data, the traceability regulators expect — and that courts increasingly probe — remains fragile, a point Ksapa develops further in its explainer on ESRS: the 12 standards driving CSRD sustainability reporting and its overview of CSRD and EU ESRS standards.

The third layer is justifying deviations. When a board departs significantly from its originally set qualitative-to-quantifiable ratio, AMF doctrine expects a specific, circumstantial explanation, not boilerplate language buried in a registration document. Ksapa’s article on the board’s critical role in CSRD implementation notes, based on interviews with directors at large European companies, that boards often struggle to engage naturally with this scrutiny — a governance gap that climate litigation, from the Netherlands to Australia, is making progressively costlier to leave unaddressed. This documentation discipline is also spreading into private-equity practice, where governance criteria increasingly shape deal structuring. Ksapa’s guide to ESG due diligence best practices for investment success lists executive compensation explicitly among the governance items reviewed during due diligence, and Ksapa’s related piece on applying a total-cost-of-ownership lens to ESG investments distinguishes minimal-engagement ESG programmes — where metrics stay decorative — from transformational integration, where ESG metrics genuinely shape both pay and capital allocation. The regulatory net is tightening further still: under the EU’s Corporate Sustainability Due Diligence Directive, covered in Ksapa’s overview of the CS3D agreement’s key requirements, large companies may be legally required to link executive pay to implementation of a climate transition plan aligned with the Paris Agreement’s 1.5°C goal — a formal hook that goes beyond “comply or explain.”

The broader argument, developed in Ksapa’s ESG: Moving Beyond Buzzwords to Real Impact, is that embedding ESG into governance structures and decision-making — clear accountability frameworks, board-level committees, and metrics genuinely woven into executive pay — is what separates programmes that shift capital allocation from programmes that merely generate reporting volume. That is the deeper stake behind France’s August 2026 doctrine refresh: not a new obligation, but a sharper insistence that governance, not disclosure alone, is where climate accountability is actually tested — a lesson the Dutch and Australian courts have already delivered in their own jurisdictions.

Takeaways: governance as exposure, not paperwork

The Milieudefensie and McVeigh cases, and France’s own 25 June 2026 court ruling against TotalEnergies under its duty-of-vigilance law recognising climate risk within Scope 3 emissions, belong to a different register than a regulator’s doctrine refresh. But they converge on the same message for boards everywhere: climate governance is no longer a communications choice, it is a matter of legal and fiduciary exposure for directors and officers. France’s AMF refresh does not create a new obligation on climate criteria in executive pay — that has applied under the AFEP-MEDEF Code since 2022 — nor on disclosing the level of achievement per objective, which dates to 2017. What it changes is legibility, at precisely the moment courts are making governance failures far harder to treat as a footnote. For boards, remuneration committees and sustainability functions, the “G” in ESG stops being reporting’s poor relation: it becomes the terrain on which director and officer exposure is actually decided.