April 17, 2024

Environmental, social and governance (ESG) used to be a fringe concept. But a 2021 survey conducted by NAVEX Global found that almost 90% of public companies have ESG initiatives in place, illustrating the important role it plays today.

Stakeholders are increasingly interested in looking beyond financial figures and evaluating performance in the context of ESG considerations. This shift presents a significant opportunity for companies that prioritise ESG. But what part do company boards play?

In this article, we’ll explain the role of company boards in overseeing ESG.

Establishing structure

How the board designates responsibilities can have a significant impact on ESG. Companies need to create dedicated ESG committees. The board should appoint any members possessing relevant experience, fund ESG training to equip committee members with expertise or hire external specialists to fill knowledge gaps. This will ensure the committee has the necessary skillset to effectively govern ESG matters. Coordination between the members of the committee members is crucial, considering the vast scope of each factor.

Defining the strategy

Successful ESG initiatives depend on well-defined strategies that integrate with core business goals. The board must consider how ESG factors into the company’s long-term growth plans and look for opportunities to innovate new products or services that address the business’s challenges. By developing a well-defined ESG strategy, the board will not only set the stage to mitigate risks but also unlock potential for new areas of growth.

Managing risks

Strong oversight involves the board proactively identifying and assessing the different ESG-related risks threatening the company. These could range from environmental risks like resource consumption that can disrupt operations to social risks like labour practices that can destroy the brand’s reputation. The board should also work with external ESG consultants to develop robust mitigation strategies, ensuring the company is prepared to navigate any future challenges.

Maintaining transparency

Investors and other stakeholders need ESG disclosures to be as clear and accessible as possible, containing credible and reliable information. Company boards are responsible for providing this reporting accurately and transparently. But this goes beyond simply providing disclosures – it involves reporting on progress against pre-determined goals. To demonstrate true trustworthiness, the board should consider using third-party verification to enhance the credibility of ESG data.

Leading the charge

Effective ESG initiatives are a necessity, and company boards hold the responsibility for overseeing them. By implementing the advice above, boards can position their companies for long-term success in a world increasingly focused on environmental and social responsibility. This leadership won’t just translate to mitigating risks and earning stakeholders’ trust, but also to unlocking new opportunities for responsible growth.