ESG may be a hot topic, but a quick internet search will give you a snapshot of the breadth of possible interpretations behind those three words. Boards need to see their way through the myriad of definitions, interpretations and priorities that have come to be ESG. The question is: how?
1. Know what ESG means in your organisational context
Increasing demands can propel unprepared organisations into an imbalanced or inappropriate response. So it’s vital to have a clear consensus about
- what ESG means in relation to your organisation’s context and purpose and
- the overall level of maturity on ESG issues.
2. Start with the G
Environment and Society are not new topics. Many boards have had climate impacts on their risk registers for some time. Subjects like employee wellbeing, supply chain risks, data security and AI have also taken a higher priority in board agendas of late.
What we are seeing now is a huge acceleration in the emphasis on ESG from all angles. Although it has been given less prominence, governance can be key to getting ESG right for your organisation.
Effective governance builds on what has already been achieved and will help you prioritise the elements of ESG that matter most to your organisation. It allows you to create an impactful and sustainable mechanism for addressing ESG as part of your organisation’s overall purpose, vision and strategy.
3. The Board must step up on ESG
The ESG agenda requires sustained, long-term action and vision. This is where the Board can play a unique role. So, the Board needs to ensure it fully understands, and engages with, ESG issues in order to steer organisations over the long term.
This means asking questions like:
- Who are our key stakeholders and why? And how do we make sure we give them the consideration they deserve?
- How do we ensure we have the necessary knowledge and understanding of ongoing ESG developments to make informed decisions?
- Is ESG an integral part of our decision-making? Rather than a separate item on the agenda, ESG should explicitly feature in everything from strategy and risk discussion to target setting and performance assessment.
- Are we aligned on organisational purpose – do the Board and management agree on the kind of organisation they want to run, and is this reflected in the strategy?
- Have we mobilised the right resource? Could we benefit from external overview on our governance capability and effectiveness?
Getting answers on these questions will show you where the company stands on ESG maturity. It will also show you what your immediate action steps should be.
4. The pivotal role of the CoSec
This is a time of opportunity as well as challenge. As governance professionals we are in a unique position to help boards develop a meaningful definition of ESG and to create effective frameworks for addressing it. When Boards are encouraged to look at ESG through the prism of the G, they are far more likely to find the benefits in addressing it as part of their organisation’s overall purpose, vision, and strategy.
Viewed like this, ESG becomes an opportunity to create long-term value for your organisations and contribute to building a better world for everyone.
Susan Stenson, CEO, Independent Audit
We will be discussing ESG at our upcoming Governance 2022 conference.
