The impetus for an organisation to embrace the ESG agenda can arise from a number of stakeholders: the senior management team and other colleagues, investors, shareholders, funders, stakeholders, customers, and others with an interest in the issues or an entity. Wherever the pressure for embracing ESG comes from, it is the board that should lead on defining the organisation’s values and aims in tackling ESG issues as part of its legal, ethical and cultural responsibilities. However, with so many other issues competing for the board’s time, it can be difficult to explicitly address ESG in board papers and discussions.
Ultimately, ESG activities should be incorporated into other board reports and decision-making to ensure that tackling ESG challenges is not seen as a passing ‘fad’ but becomes an integral aspect of developing an organisation that is sustainable, ethical and efficient on several levels. A common approach to dealing with ESG issues is to view them through the perspective of risk and resilience. This may be the path of least resistance for some boards; others may already embrace ESG as part of their duty to be good global citizens.
Reporting on activities to address issues ranging from climate change, equality, diversity and inclusion, and social justice can help inform and strengthen internal reporting systems, thereby enhancing governance arrangements as a whole. Clear links between strategic goals, the business model, risks, opportunities, operational indicators, financial performance or impact can foster better decision-making and improve the ability to deliver the organisation’s aims. All types of entities will be better able to identify and manage risk, evaluate and measure success and recognise future challenges and opportunities.
For ESG reporting to be effective, it needs to address three areas:
- how governance arrangements and risks are disclosed;
- the role the board plays in overseeing the identification, assessment and management of risk; and
- the board’s role in evaluating and managing those risks and opportunities.
Key questions for board members to consider when thinking about the risks and opportunities associated with ESG reporting are identified in the following box.
Introducing the topic
- Are ESG issues explicitly included in board strategy days? Are there specific issues or more general themes relevant to the organisation?
- Do current areas of governance include ESG activities and initiatives in their approach, operational aspects and organisational policies, e.g. reduce, re-use and recycle campaigns in the office, approaches to sustainable or ethical supply chains, or EDI recruitment practices?
- What is the board’s view on each relevant ESG-related risk facing the organisation and the communities it works with or serves? How are those views informed?
- What evidence is there that there is a need for the organisation to report on various ESG activities? Where is that coming from?
- What are the incentives to encourage the organisation to report against ESG initiatives – tax benefits, customers, clients, staff, volunteers, investors, shareholders, funders, donors, supporters, suppliers, regulators, other stakeholders?
- What are other organisations operating in the same space doing in relation to ESG reporting?
- What is the board’s current role regarding each relevant ESG-related risk?
- What is the senior management team’s current role regarding each relevant ESG-related risk?
- What current ESG reporting requirements are required of your organisation? Could these be built upon to develop a wider organisational holistic approach to business practices, risk and resilience, culture and stakeholder engagement?
Opportunities
- Could the organisations’ purposes be better served by adopting ESG initiatives within its operational activities? This might include:
- resource use and efficiency;
- talent recruitment and management;
- energy savings and sustainability;
- reputational advantages;
- alternative income streams (new products, services and investment opportunities supporting a broad range of stakeholders);
- reinforcing organisational culture, values or behaviours;
- shareholder/stakeholder acquisition and retention.
- How would adopting ESG reporting to the board deliver better decision-making?
- Would ESG reporting improve public trust and confidence in the organisation (or industry/sector) by being more honest and open? Could that impact be measured or result in efficiencies or other benefits?
- Are there sources of funding that focus on relevant ESG factors which are currently unavailable to the organisation? What would the organisation need to do to be able to access them?
Board oversight
- Who is responsible for ESG-related risk issues facing the organisation? How are the board and its committees involved?
- How often does the board consider each relevant ESG-related risk to the organisation, and to what degree?
- What information is presented to the board relating to ESG factors affecting the organisation and the customers/communities it serves? How is that information used?
- What processes does the organisation have in place for assessing and considering relevant ESG issues?
- How do board members decide what ESG -related risks are deemed as ‘material’ to the work of the organisation?
- Are there any existing ESG reporting models or frameworks the board could adopt or adapt?
Strategy
- How can ESG reporting and initiatives support the organisation in achieving its strategic aims?
- What strategy does the organisation have for responding to material ESG-related risks?
- How can ESG activities be used to align the board, senior managers, staff and others involved in delivering the organisation’s aims?
Operational
- What ESG issues affect the business model? In what way?
- Is the organisation’s operating model sustainable in light of material ESG -related risks? If not, what can be changed to improve the organisation’s sustainability?
- What are the operational risks and opportunities aligned to ESG-related risks? How can the organisation prioritise each?
- How is the organisation moving towards a sustainable and resilient business plan?
- What short, medium and long-term changes could the organisation introduce to mitigate material ESG-related risks?
- What ESG-related scenarios could affect the organisation’s ongoing sustainability and success?
ESG-related risks and management
- What relevant ESG-related risks, directly and indirectly, apply to the organisation and its intended aims? How could they derail strategic aims?
- What does the board have in place to assess/consider ESG-related issues?
- How can the board monitor the impact of its ESG-related risk management approaches?
- What risk management systems are in place to specifically deal with material ESG risks?
- How frequently are individual ESG risks reviewed, the risk register and resilience plans amended?
- What is the chief executive’s and other senior executive’s perspective(s) on relevant ESG issues affecting the organisation’s ability to achieve its goals?
- What will the organisation look like in the future? Will it continue to be sustainable, and in what form?
Reporting
- What are the current reporting requirements around different ESG issues for your organisation? Should it include something in the board’s annual public statements dealing with finances, risk, impact or CSR?
- What are the regulators’ needs relating to ESG reporting and could the same data and information be used for each?
- Does the organisation plan to voluntarily adopt a formally developed an ESG reporting standard? If so, which one and why?
- How will the organisation disclose its relevant ESG activities to its shareholders/stakeholders and the wider public?
- Will any reports include historical trends from within the organisation and the wider (sub) sector/industry, e.g. relevant ratios, and sector/industry averages? Does it have access to that information? If not, should it seek to work with others to produce it? Would that help deliver organisational objectives?
- How does the chosen ESG reporting framework relate to the organisation’s goals?
- How have any relevant ESG events or issues affected organisational performance and impact (planned and unplanned)?
Any ESG statement should reflect the circumstances of the individual organisation and provide boards with the opportunity to reflect on an organisation’s role and impact – both planned and unintentional, and how its activities contribute to wider social, sustainability, environmental and development goals.
When developing such statements, the board should consider:
- The importance each shareholder/stakeholder group attaches to the identified ESG consideration and how that shareholder/stakeholder group influences the board’s approach to specific and generic ESG matters (for example, does the organisation have a perspective on the priority accorded to each stakeholder group, such as institutional investors over individual investors, clients and/or customers over staff (and volunteers), over dedicated supporters and the general public?);
- Which ESG -related factors are relevant to the organisation, and its shareholders/stakeholders, which ones were chosen for addressing by the board and what is the explanation to support that decision;
- Realistic timeframes for seeing change within the organisation (and its branches), the area in which it operates and potentially wider society as a consequence of the organisation’s ESG activities.
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To help you find resources on ESG, we have put together a webpage with links to our content, including blogs, papers and relevant courses. Take a look at our ESG resource hub.
