Board members are tasked with the long-term financial security of their organizations, and more than ever, environmental, social and governance (ESG) considerations factor into their oversight.
By working with their companies’ cross-functional ESG teams, boards can gain knowledge about emerging ESG obligations they need to properly establish and oversee organizational strategy. Here are three ways boards can collaborate with cross-functional teams to set and make progress on ESG imperatives:.
1. Build In ESG Education. Boards must have current knowledge of industry trends, regulatory requirements and stakeholder considerations. The first step in gathering that knowledge is coordinating ESG training sessions. ESG teams can help facilitate training, often with assistance from external legal counsel and consultants. Initial curricula should focus on a baseline understanding of ESG market trends, reporting frameworks, companies’ historical efforts and key regulatory and stakeholder demands.
Boards should also review their companies’ stated ESG goals and commitments, which might focus on employee diversity, climate risk, responsible sourcing and more. Boards should be familiar with management’s plans to train employees on ESG initiatives and acquire dedicated ESG talent. Subsequent board sessions might dive deeper into company plans for regulatory compliance, specifically the proposed Securities and Exchange Commission’s climate rule, possible future proposals on human capital disclosures and corporate board diversity. Global regulations regarding forced labor, responsible sourcing and supply chain due diligence might be addressed, as they could affect the company—both as direct reporting obligations and through requests from global customers.
What Boards Should Ask
• Who can best educate the board on ESG issues?
• What ESG commitments has the company made? Who maintains the listing of those commitments, and is it complete?
• Is there is an adequate level of ESG knowledge and skill sets within the organization? What plans are in place for training employees on ESG initiatives, and how will they be communicated?
2. Share Your ESG Story. From investors to customers, stakeholders are interested in their companies’ ESG initiatives. ESG teams should identify which ESG topics and metrics are most relevant to stakeholders and communicate findings to their boards. For example, in some organizations, diversity might be a high priority for stakeholders. In others, climate risks or responsible sourcing might be more important.
ESG teams measure and monitor ESG metrics and assess the weight of risks on company strategy. However, boards should review the metrics and risk assessments to understand the short- and long-term consequences.
An ESG story isn’t a set-it-and-forget-it undertaking. Boards need to work with ESG teams to create a communication plan for ESG strategy and progress to stakeholders. Boards and ESG teams should stay current on industry and stakeholder demands and incorporate those (or shift priorities) as needed. Given increasing scrutiny, it’s also critical to ensure that ESG reporting is well supported with validated data and strong process and IT controls.
What Boards Should Ask
• What are stakeholders’ views on the company’s relevant ESG metrics?
• How are ESG matters communicated to various stakeholder groups?
• Have ESG initiatives been incorporated into the company’s long-term strategy and risk assessment processes?
• How is the company tracking performance against its ESG goals and commitments?
• How does the team monitor what competitors are doing regarding ESG?
3. Guide and Govern ESG Initiatives. While boards are ultimately responsible for guiding and governing ESG initiatives, it’s important for them to work with ESG teams to monitor trends in ESG risks and opportunities. ESG issues can affect strategic planning and must be considered as part of an overall enterprise risk management process. Boards must engage in consistent and meaningful discussions with internal teams as well as external counsel and assurance providers to fully grasp and properly plan for the impacts of ESG on their organizations.
What Boards Should Ask
• What board committees will oversee ESG?
• Who will make up the ESG team? Does it comprise a cross-functional group from across the company?
• Who will define and communicate ESG initiatives?
• What are the ESG team’s views on how proposed ESG regulatory rules might affect the company? Does the board agree?
• How is the ESG team monitoring ESG regulatory proposals? How are changes and developments being communicated to the board? • What are the biggest challenges proposed ESG regulatory rules might pose? How might they be overcome?
4. Collaborate To Set Priorities. Ultimately, boards have final oversight for ESG initiatives, which means they set the tone for ESG. When boards work with their cross-functional ESG teams, they can craft a better ESG strategy.