Connecting ESG Strategy: and Long-Term Performance: Bolstering public capital markets and cybersecurity are expected to be key priorities.

AuthorWhalen, Dennis T.
PositionON THE GOVERNANCE AGENDA

Investors continue to elevate environmental, social and governance (ESG) issues on their agendas as a key to long-term value creation. Yet, for many companies and their boards, ESG remains peripheral to corporate strategy and other core business activities.

Only a third of directors and senior management responding to our recent survey indicated that their company is focused on ESG issues due to pressure from investors or a connection to longterm performance. Indeed, "reputation risk" ranked as a top driver of the company's focus on ESG issues, with more than a third of respondents reporting that ESG is widely seen as a "soft brand/marketing" issue.

Connecting ESG to strategy and long-term performance--as many institutional investors, including BlackRock Funds, State Street Global Advisors and The Vanguard Group, have called on companies to do more effectively --is no easy undertaking.

Each company has its own mix of issues that are significant to its operations and strategy, and it's clear that companies are moving at different speeds in addressing ESG risks and opportunities. Wherever the company is on its ESG journey, the board has a pivotal role to play in helping to shift ESG from the periphery to the center of the company's thinking.

To help boards have more robust conversations about ESG and the total impact of the company's strategy, operations and long-term performance, our paper, "ESG, Strategy, and the Long View" lays out a five-part framework, focusing on:

* Articulating what ESG means to the business and agreeing on common language.

* Identifying key ESG-related risks and opportunities --particularly those that are strategically significant to the company.

* Integrating ESG issues into the company's strategy, and helping to ensure alignment and buyin across the enterprise through the right culture and incentives.

* Effectively communicating the company's "ESG story" to investors and other stakeholders.

* Ensuring that the board has the necessary skills, processes and information to help guide the company forward.

In addition to finding that companies/boards appear to be lagging behind investors on the importance of ESG to long-term performance, our survey results show that companies are struggling to integrate ESG issues into their core business processes. Only 23% of those surveyed said ESG issues are integrated into the company's core business to a great extent, while the same percentage said ESG issues are only somewhat...

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