ESG' Knocking on the Boardroom Door: Environmental, social and governance: Supporting the bottom line and the greater good.

• Author: Hall, April
• Position: BEYOND THE BOTTOM LINE

ConocoPhillips Co. director Jody Freeman sees environmental, social and governance issues, or ESG, as part of the board's key responsibilities and an essential part of strategic planning.

"We play the same oversight and fiduciary role on behalf of shareholders on ESG issues as we do on everything else," says Freeman, who sits on the public policy committee of the energy company.

Encouraging corporations to consider the greater good is nothing new. It has had many iterations and names, i.e. corporate responsibility, socially responsible investing and "the triple bottom line." ESG is the latest salvo, broadening the concept to include everything from gender inequality to bribery to climate change; and it's gaining momentum in Corporate America.

For ConocoPhillips, these issues have been a strategic concern since Freeman joined the board in 2012, a fact that's an exception among many corporate boards.

ESG issues ranked lowest among business strategy drivers, according to a PwC survey of nearly 800 board directors; and anecdotally Directors & Boards found many directors who didn't even know what ESG was. But there's growing pressure from investors and other stakeholders to make ESG a bigger priority in the boardroom.

If the issues are not addressed in the boardroom, trillions of investment dollars could be at stake, which is why investors have the power to bring these issues to the board and make an impact.

"Investors have done a terrific job of getting this to the forefront," says Paula Loop, leader of the Governance Insights Center at PwC, about ESG.

"There is a fair amount of education that needs to happen," she notes. "Executives need to speak about it during strategy sessions with the board and with investors --executives need to embed it in the broader strategy sessions."

Too often, she adds, ESG topics and the risk surrounding them are siloed into separate conversations and taken off the table when it comes to company strategy.

Freeman says her experience at ConocoPhillips is just the opposite.

"The board takes these issues very seriously," she says. "Managing these issues well is integral to the company's strategic thinking, and they are built into our robust scenario planning. No one thinks of them as tangential."

Freeman provided a rundown of the tools the board uses:

* Stakeholder engagement--ConocoPhillips proactively engages with stakeholders at the local, state/provincial and federal levels to understand their interests, concerns and culture. As appropriate, the company incorporates lessons from stakeholder engagement into its business and action plans.

* Action plans--ConocoPhillips has adopted company-wide, three- to five-year action plans to drive performance. These plans include specific, measurable goals and require accountability for results. The company has climate change, water, biodiversity and human rights action plans.

* Scenario planning--ConocoPhillips uses four main corporate supply-and-demand scenarios, one of which represents a carbon-constrained future, which takes into account alternative energy...