As we enter the last few months of 2021, pressure around ESG action is coming at companies from all sides. Investors are looking for robust plans, governments and other regulators are imposing ESG rules and guidelines, and employees, clients, and customers are increasingly concerned with working for and supporting companies that share their values. On top of these developments, the COP26 climate summit begins on Sunday, Oct. 31, adding a new facet to existing pressures.
In the boardroom especially, directors are increasingly tasked with overseeing ESG. Issues that normally would not have risen to the board level are being discussed at every meeting and need to be considered when thinking about the long-term future of the company. As pressure mounts, how are boards grappling with ESG, and how are they feeling about it? What are some of the things boards can do to get ESG right, and quickly?
How are boards thinking (and feeling) about ESG?
In a recent survey conducted by the Diligent Institute and Corporate Board Member, we saw director backlash against ESG. We asked directors about the issues they believe bear the greatest influence on the success of their company’s strategy. Even though attracting and maintaining talent came in second place, ESG goals/reporting and climate risk only garnered 6% and 7% of respondents, respectively. Similarly, when asked which topics would be most prominent on their board’s agenda in 2022, climate risk was chosen by only 14% of respondents.
The comment section of the survey further indicated director burnout on ESG. One respondent stated, “Too busy trying to survive to focus on ESG,” showing that for some directors, ESG is still thought of as a luxury item and not necessary to business strategy. Another respondent indicated that “ESG should not supersede strategy.” For many companies, viewing ESG as a strategic imperative is still a long way off. Several respondents called ESG management and oversight “irrelevant.”
Though these respondents don’t represent all directors and boards, ESG burnout is nonetheless a serious issue that needs to be managed, particularly in the wake of the worsening climate crisis and increasing pressure around all aspects of ESG for companies. How can directors fight ESG burnout?
How boards can get ESG right, right now
1. Get educated on ESG. It’s possible that director burnout around ESG is coming from more than the sheer amount of coverage in the news cycle and increasing demands around action. Similar to trends we saw with directors around cybersecurity five years ago, director disillusionment around ESG may also stem from a lack of experience and understanding.
But it’s never too late to learn more about emerging topics in the business landscape, particularly when they’re likely to continue coming up in the boardroom the way ESG is now. Director education and certification on climate competence and environmental sustainability, as well as the social and governance aspects of ESG, could help to deal with any burnout head-on by reducing feelings of unease or lack of confidence. If directors can wrap their arms around the issue, it will become less of a burden for them to oversee as part of their roles.
2. Implement the right tools. Another reason why directors are daunted by ESG may be because they are unsure about how to successfully monitor and track progress. ESG goals will look different for each company, and the myriad processes, standards, and metrics can be confusing and tiresome.
This stress can be alleviated by using the right tools to gain greater visibility over what’s really happening around ESG at your company. As a director, you can and should insist on better reporting at the right level for board involvement. Having the right information on relevant issues at your fingertips in real time will equip you to better align ESG with long-term strategy. This is hard to do without having a clear picture of where you stand.
3. Create an ESG infrastructure. Once the board has both a solid understanding of ESG issues and the right tools to ensure they receive relevant information on ESG, it’s time to take the next step—creating an ESG infrastructure—to ensure that ESG issues are properly managed, tracked, and elevated to the boardroom.
This can be accomplished by making the CEO directly accountable while ensuring that there are other leadership team members to help manage ESG. As with cybersecurity risk, everyone will have some level of ESG responsibility, but there need to be specific individuals and teams who are accountable. Task appropriate committees with handling their parts of the broader strategy, but ensure the full board is accountable on oversight of strategic decisions. Ensure that you have the right incentives in place to spur progress.
4. Align ESG with long-term strategy. Once the stage has been set with effective director education, successful tools to monitor progress and emerging developments, and an ESG infrastructure, you will be fully equipped to align ESG with your company’s long-term strategy.
Here are some questions your board should be asking as you navigate this alignment: How well aligned is the company’s current overall strategy with long-term sustainability goals? Where are the potentially harmful impacts in the longer-term that might be obscured by short-term gains? The most important thing to remember is that the board should work to ensure that ESG strategy is specific to the company, and not generic to an industry or peer group.
When ESG is inextricably linked to strategy with the right tools and processes in place, board oversight of ESG won’t be a burden. Instead, it will make board oversight more holistic, driving company success and long-term sustainable value creation.
Dottie Schindlinger is executive director of the Diligent Institute, the global corporate governance research arm and think tank of Diligent Corp., the largest SaaS company in the governance, risk, and compliance (GRC) space.
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