Steering the future: How boards enhance ESG oversight and strategy
With the rise of new climate reporting requirements and more organizations embedding ESG in their strategic objectives, we’ve been tracking the evolution of ESG and its impact on organizations around the globe. In June we published two independent reports, Sustainability in the Spotlight and ESG Engagements in 2024. For this edition of the Diligent Minute, Amanda Carty, Senior Vice President & Managing Director, highlights a few ways boards are addressing their mandate to do more than simply oversee ESG strategies. Subscribe to the Diligent Minute today.
The emphasis on environmental, social and governance (ESG) strategies has become more pronounced than ever. As stakeholders increasingly demand greater transparency and more ethical operations, boards are stepping up to more actively integrate and oversee ESG strategies. Here are a few ways they are tackling this evolving responsibility:
1. Taking advantage of enhanced training and education
Boards are recognizing the need for specialized knowledge in ESG matters, which is distinct from other types of oversight. To bridge this gap, directors are taking part in comprehensive training programs that educate them about their fiduciary and regulatory duties related to ESG. This training often covers both quantitative and qualitative aspects of ESG programs, ensuring that board members are well-equipped to make informed decisions that align with regulatory requirements, company initiatives, and shareholder and stakeholder expectations.
2. Establishing dedicated ESG and/or climate risk committees
Given the complexity and importance of ESG issues, many boards are forming dedicated committees to focus specifically on ESG matters. These specialized committees are tasked with developing ESG strategies, setting targets and ensuring that these initiatives are integrated into the broader corporate strategy.
For instance, climate risk, which has emerged as a significant concern inherent in most ESG strategies, often warrants its own committee or a specialized working group within the ESG committee to address the physical, operational, financial and transitional risks associated with climate change.
3. Utilizing advanced tools and AI
To effectively manage and benchmark ESG efforts, boards are turning to advanced technological solutions. AI-powered ESG tools offer a way to quickly scan and compare an organization’s ESG reporting against industry standards and peers. This not only helps in identifying areas of improvement but also in maintaining a competitive edge by ensuring compliance with evolving ESG benchmarks.
Additionally, today’s purpose-built ESG and climate risk solutions also help track the progress of initiatives so that directors and their management teams can make necessary adjustments to align with global or industry standards as well as shareholder and stakeholder expectation.
4. Adapting to regulatory changes with agility
With ESG and climate risk disclosure regulations evolving rapidly, particularly around sustainability and supply chain practices, boards must stay informed about the regulatory landscape in various jurisdictions. Regardless of where operations are based, today’s globally interconnected way of conducting business means that directors must understand specific reporting obligations at both a parent and a subsidiary level. Tools that support compliance and ethics training, as well as third-party risk management, are becoming indispensable in ensuring that boards can uphold the required standards and practices that are inherent in their oversight duties.
5. Assessing risk and setting up controls
For organizations that have publicly committed to emissions reductions or made similar environmental statements, it is crucial to evaluate the risk of being accused of greenwashing. The responsibility for this oversight can be assigned to the Audit Committee, which should ensure robust controls are in place. These controls must verify the reliability of the processes and data used and confirm compliance with applicable standards and regulations. Additionally, companies should conduct a thorough review of all sustainability regulations that apply to them and establish stringent controls for any significant regulations to maintain transparency and accountability.
For more information on our findings, refer to our two reports on Sustainability in the Spotlight and ESG Engagements in 2024.
