They say that trust takes years to build, seconds to break, and forever to repair. Nowhere is this truer than in the field of capital allocation, with investors continuing to be dismayed by stories of financial misconduct and non-compliance.

It’s no secret that private equity in emerging markets has had its fair share of negative headlines in 2018. This scrutiny has centred around the implementation of corporate governance structures, particularly disclosure models and risk frameworks.

But it is important to refrain from painting all GPs (general partners) with the same brush, and to learn to identify the characteristics that mark strong corporate governance systems from the weaker players, and the motives that encourage a focus on governance.

For example, in many ways, private equity firms and their portfolio companies are less susceptible to governance risks than listed companies. LPs (limited partners) are dependent on maintaining a shining reputation for raising further funds. And private equity board members, seeking rapid value creation and an ultimate exit, should be totally aligned with the interests of founding owners.

Non-shareholding board members offer good independent perspective, but there are cases where having no skin in the game leads to a low attention span, and sometimes views can be swayed by conflicting interests.

As a global health care investor, balancing the interests of our shareholders, management, customers, and other public stakeholders has been a key focus since we started investing in emerging markets 10 years ago. Since our first fundraise back in 2010, we have worked with the International Finance Corporation (IFC), a member of the World Bank, to implement social and environmental management systems across our portfolio companies and partnered with global accreditations to integrate ESG issues into investment decision-making and ownership practices.

The benefits of adopting these governance models into our operations have been clear.

Most importantly, they have helped us to grow the bottom-line. Studies continue to show us that companies with strong corporate governance models run like well-oiled machines. They have good relations with government and a deep understanding of the regulatory requirements in their markets.

Their strategies are shaped by relevant data. And they can maintain a diligent eye on their assets and spot red flags early on.

They are also easier to exit. The industry is still figuring out how to measure this correlation, but the benefit of building a clean asset to distinguish from other investors was clear to us when we successfully sold ProVita International Medical Centre to NMC Health plc in 2015. And it has become even more important in today’s challenging exit market.

Finally, introducing an extra step of ESG (environmental, social, governance) and SDG (social development governance) focused reporting has helped us ensure that we optimise our impact and contribute to the societies we operate in. Health care is heavily regulated by private and public regulatory bodies that monitor negligence and compliance with safety standards, due to its important role in society.

But specific governance reporting connects us to global ESG conversations to help align our business models with community challenges. Our ESG reporting helps us to highlight our impact through job creation and better health care for more people, combined with a relentless focus on improving industry transparency.

So why are companies still getting caught out? For one, building strong governance models is a costly affair, once you consider the additional roles, reporting, and monitoring required. As such, it can be challenging bringing management on board to see the value.

Many companies still view stiff corporate governance, diversity and, especially, ESG regulations as a checklist rather than incentives to do business better. These regulations need to be adapted to focus on the outcomes rather than the problems. And industry data that links good governance and diversity to performance and impact is available, but should be collected on a wider level to make a stronger case for these changes.

The cost of getting it wrong is growing. It’s time to stop looking at ESG implementers as “do-gooders”, and view corporate governance as common-sense policies and measurements that are a necessity, rather than a nice-to-have.

Hoda Abou-Jamra is Founding Partner, TVM Capital Healthcare.