Governance Overtakes Environmental Issues as Leading ESG Reputational Risk for Businesses in 2026

Corporate governance has emerged as the most significant ESG-related reputational risk facing businesses in 2026, according to new research from GlobeScan. The findings mark a notable shift in how corporate leaders view sustainability-related risks, with governance concerns now ranking ahead of environmental and social issues for the first time in the survey's recent history.

The GlobeScan Corporate Affairs Survey, conducted between February and April 2026, gathered responses from 294 corporate affairs professionals and business leaders across global markets. Participants were asked to rank the three pillars of ESG- environmental, social, and governance- according to the reputational risks they pose to their organizations.

Nearly half of respondents, 45%, identified governance as the most significant reputational risk, up sharply from 29% in 2024. By contrast, environmental risks fell from 39% in 2024 to 27% in 2026, while social issues remained relatively stable at 26%.

The results suggest that companies are becoming increasingly concerned about failures related to ethics, compliance, board oversight, transparency, executive conduct, and internal accountability mechanisms.

Why Governance Is Rising to the Corporate Agenda

The shift reflects a broader evolution in the corporate risk landscape. Over the past several years, environmental issues such as climate change, emissions reduction, and sustainability reporting have dominated ESG discussions. However, governance failures have increasingly attracted attention from regulators, investors, employees, customers, and civil society organizations.

According to GlobeScan, the rise in governance concerns is linked to growing stakeholder expectations, heightened regulatory scrutiny, and a series of high-profile governance controversies that have damaged corporate reputations and shareholder value.

Organizations are facing greater pressure to demonstrate strong internal controls, transparent decision-making processes, ethical leadership, and effective risk management. In many markets, regulators are also introducing stricter requirements related to corporate disclosures, board accountability, anti-corruption measures, and governance oversight.

The survey findings suggest that reputational damage today is increasingly associated with how companies are governed rather than solely with their environmental performance. Governance failures can rapidly undermine trust among investors, customers, employees, and regulators, often leading to financial consequences that extend far beyond immediate public relations challenges.

Environmental Risks Remain Important

Although environmental issues have dropped in relative ranking, experts caution that climate and sustainability risks remain highly significant for businesses.

The decline from 39% to 27% does not necessarily indicate that environmental concerns have become less important. Instead, it may reflect a perception among corporate leaders that environmental risks are becoming more familiar, better understood, and increasingly integrated into corporate management systems.

Over the past decade, many organizations have invested heavily in climate strategies, emissions reporting, sustainability governance frameworks, and net-zero commitments. As a result, some corporate leaders may feel more prepared to manage environmental challenges than they did in previous years.

At the same time, climate-related regulations continue to expand across many jurisdictions. Mandatory climate disclosures, supply chain transparency requirements, carbon reporting obligations, and biodiversity-related reporting initiatives are creating new expectations for businesses. Companies that fail to address these issues effectively still face substantial legal, financial, and reputational risks.

For organizations pursuing net-zero goals, the survey serves as a reminder that environmental performance alone is no longer sufficient. Strong governance structures are increasingly viewed as essential for delivering credible sustainability outcomes.

The Persistent Undervaluation of Social Risks

Social issues remained the lowest-ranked ESG risk category, cited by 26% of respondents. However, experts warn that social factors may be underestimated by many organizations.

Workforce relations, diversity and inclusion, labor rights, community engagement, supply chain practices, and human rights issues can quickly escalate into major reputational crises when mishandled. In many cases, social controversies generate significant public attention and can directly affect customer loyalty, employee retention, and investor confidence.

The relatively low ranking of social risks may reflect a perception that such issues are less likely to trigger immediate crises. However, many sustainability professionals argue that social factors remain deeply interconnected with both environmental and governance performance.

Implications for Sustainability and Net-Zero Strategies

The findings have important implications for companies working toward sustainability and net-zero objectives.

As governance becomes more central to corporate reputation, sustainability teams may need to strengthen collaboration with legal, compliance, risk management, investor relations, and corporate affairs functions. ESG performance is increasingly being evaluated not only through environmental metrics but also through the quality of governance systems that support decision-making and accountability.

Strong governance can help organizations ensure that climate targets are credible, sustainability claims are verifiable, and ESG commitments are effectively integrated into business operations. It also plays a critical role in managing emerging risks related to artificial intelligence, cybersecurity, misinformation, and geopolitical uncertainty, all of which are becoming more relevant to corporate reputation.

The survey highlights the growing importance of transparency, ethical leadership, and robust oversight as core components of long-term sustainability strategies. Businesses that can demonstrate strong governance alongside environmental and social performance may be better positioned to maintain stakeholder trust and navigate an increasingly complex operating environment.

As ESG frameworks continue to evolve, the message from corporate leaders is clear: governance is no longer a supporting pillar of sustainability strategy. It is becoming one of the primary determinants of corporate reputation and resilience.

Source: www.esgdive.com