Shifts in the social, economic and geo-political landscape place boards under pressure to expand their obligations well beyond the direct needs of their corporation and its shareholders. In addition to grappling with issues that face the corporation, directors, it seems, must now place the greater social good on their dashboards and collectively develop probing expertise on issues as far ranging as: climate change, diversity, benefits, privacy, data security, etc. They are now expected to balance profitability and value-creation goals with the demands of a broader community of stakeholders, including possible misaligned perspectives of regulators, employees, counter-parties, consumers, investors and noninvestors --all of whom claim a vested interest in the corporation's practices and community impact.
There are a number of steps a board should take to adequately address environmental, social and governance issues (ESG).
The first step is often overlooked in the rush to respond to the latest headline or perceived threat. To identify and measure the impact of ESG factors on an entity, boards are advised to commission a holistic risk assessment and leverage expertise available to them. This initial step involves a candid assessment--or reassessment --of the strengths, opportunities, weaknesses and threats across geographies facing the corporation, and defining what it takes for the entity to grow responsibly. This may require outside expertise to ensure that the board is well equipped with the tools it needs to navigate and mitigate the myriad of complexities and risks with respect to ESG. The fact that the ESG landscape and the competitive pressures are continuously evolving requires ESG to be a regular agenda item for the board.
The fact that the ESG landscape and the competitive pressures are continuously evolving requires ESG to be a regular agenda item for the board.
Second, ensure that management formulates a tailored, coherent, flexible and realistic strategic plan for board review that specifically includes the mapping of all applicable short- and long-term ESG factors that impact the entity in all markets where the company's products, intellectual property or services have a touch-point. The strategic plan should include factors that measure progress towards goals and detail how the enterprise will wield its competitive advantage responsibly. The board's review and oversight of the resulting strategic plan should include priorities...