With stakeholder attitudes continuing to suggest that environmental, social and governance (ESG) principles be prioritized within a company’s organizational strategy—thus serving as key drivers of growth—it’s crucial that board members possess an awareness of ESG-related risks and the fluency to manage them as they advocate for these initiatives.
ESG remains a top concern for business leaders globally. For example, according to the World Economic Forum Global Risks Report 2022, half of the top 10 risks ranked by severity over the next decade—including the top three—were categorized as environmental risks.
Now more than ever, organizations must connect profit with purpose. Leaders committed to action on ESG initiatives should consider the following steps when collaborating with their organization’s board of directors.
1. Differentiate ESG from CSR.
Despite the new market dynamic necessitating an ESG strategy, many leaders today still struggle to understand the nuances that differentiate corporate social responsibility (CSR) and ESG.
The embrace of CSR practices has long been synonymous with “giving back.” Companies and their boards adopt initiatives (often people-facing and service-forward) that are in dialogue with the communities in which they operate. Through action and outreach of their choosing, organizations can establish a substantive commitment to their locus and its people.
While CSR practices are self-regulated—organizations choose initiatives that align with corporate messaging and can be neatly and successfully executed—an ESG agenda takes things to the next level. Proclamations of environmental and social responsibility become tenets woven into core corporate strategies and subjected to a strong governance framework.
Implementing ESG principles involves setting quantifiable targets and measurable impact assessments.
Customers, employees, investors and shareholders are united in a groundswell of support for the preservation of the planet and positive change in society. As responsible, independent and objective decision makers in business strategy and performance, boards must care about ESG because stakeholders care about ESG.
If this belief and commitment are not clearly reflected in an organization’s current board, the board may need more data about ESG risk on the organizational and global levels. In the face of rapid change, a future-forward organization may need to take more drastic action and consider reshaping its board. Engaging a board on ESG initiatives starts with ensuring its members bring the right expertise, accurate industry knowledge and realistic perspectives on the business impact of responsible ESG risk management.
2. Communicate with measurable and actionable insights.
ESG risks—especially climate-related risks—may be at the top of a board’s list of priorities, but keeping the board active, engaged and clear on the details of risks is essential. Effective communication is key to optimizing a board’s advocacy in risk, especially ESG.
This is a challenge when risk frameworks and regulations are constantly shifting and are very nuanced.
One solution is to use a measuring stick for risk that everyone on the board can understand—financial terms. Particularly among ESG risks, the true impact of some risk events (long-term climate change, worker safety, brand reputational damage) can be difficult to size up qualitatively. Quantifying ESG and risk assessments is an actionable, board-friendly method of understanding and communicating the impact of these threats.
Additionally, consider reviewing the ways other companies have accomplished ESG initiatives in order to gain support. When it comes to trending, priority risk areas like ESG, companies and their competitors are constantly under scrutiny from governments and the public for their actions.
3. Take time to strategize.
Armed with the right, quantifiable information, boards can be strong advocates when it comes to ESG risks. However, organizations and their boards limit their growth potential when ESG risk strategy is relegated to a 15-minute discussion period on a board’s packed agenda.
Boards need ample time to digest risk data, understand changing ESG regulations and their implications on the business, and intelligently make decisions. To add, almost all key stakeholders demand to see that companies are taking time to assess, discuss and measurably act on ESG issues.
When it comes to ESG compliance, a dedicated board strategy session held over several days can open time and space for boards to become active participants in their organizations’ risk systems. Without a cohesive strategy, organizations risk severe financial and reputational implications.
Leaders and boards that are still debating the importance of establishing an ESG strategy rather than working together to implement one are in danger of being left behind by stakeholders. The companies leading the transition to ESG risk management present a vital investment opportunity for stakeholders and are essential to achieving a more environmentally and socially responsible world.
Courtesy- https://www.forbes.com/sites/forbestechcouncil/2022/09/16/three-steps-for-engaging-the-board-in-esg-initiatives/?sh=47f8cac0549c