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Corporate Governance: Cross-Shareholding and Its Impact on ESG Ratings

ESG

An essential facet of business operations, corporate governance has increasingly come under scrutiny for its pivotal role in shaping corporate behavior and performance. Among the various governance structures, cross-shareholding is particularly noteworthy due to its complexity and prevalent adoption, especially in economies such as Japan and South Korea. Cross-shareholding substantially impacts corporate governance, thereby influencing a company’s ESG performance. The significance of cross-shareholding transcends conventional governance issues, influencing companies’ ESG ratings—a metric that investors are progressively employing to assess corporate sustainability and ethical practices.

Key Takeways

  • Cross-shareholding entails companies owning shares in each other, thus forming a web of mutual ownership.
  • Cross-shareholding is a double-edged sword in corporate governance and ESG ratings as it can enhance stability and foster collaboration, yet it also brings considerable challenges to transparency, accountability, and the rights of minority shareholders.
  • By focusing on these areas, companies can better align their governance practices with ESG standards, ultimately promoting more sustainable and ethical business operations.
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