Whether you think environmental, social and governance (ESG) is necessary or an egregious overreach, mandatory ESG reporting cannot be ignored. Therefore, companies will need to publicly reveal where they are on ESG and that can be problematic especially if you're still kicking the can down the road or focusing efforts exclusively on the environmental and social factors. Here’s a closer look at the G in ESG, what changes it might mean for your company, and discuss a few governance best practices.
Corporate Governance in an ESG-Focused World
Corporate governance is expansive. It's both a shield and a sword, protecting a company from the countless sources of risk lurking in the shadows, while also actively rooting out and, most importantly, reducing the risk associated with harmful negative trends, dynamics, and shortcomings that can harm the organization.
Inequity in pay and hiring practices, ineffective management, myopic internal policies and procedures, regulatory and compliance issues – they're all symptoms of poor governance.
In the age of ESG, social media, and 24-hour news cycles, forward-thinking and diverse, equitable governance practices don't garner much attention. But the slightest hiccup sure will, and given the public's insatiable appetite for miscues, fumbles, and flat-out catastrophes, ESG issues like poor governance are a sure-fire way to damage your brand and relationships with employees, partners, and other stakeholders. The stakes are indeed high.
The Benefits of Effective Governance in the Age of ESG
Ultimately, that's what ESG is all about from a company's perspective – mitigating risk. When people believe you have a sound strategy to address ESG risk, including governance issues, it can help you navigate the capital markets, attract top talent, expand your customer base, and develop key strategic and supply chain partnerships.
On the flip side, if your ESG strategy and related disclosures expose gaping holes in your governance that subject the entire organization to increased risk, all those benefits suddenly turn into corporate kryptonite.
ESG Governance Best Practices
An effective ESG strategy isn't just about reporting, it's an enterprise-wide initiative that encompasses everyone and everything from HR and marketing to logistics and IT. While the following best practices favor CFOs and their teams, they're in no way comprehensive from an organizational perspective. Simply put, these tips are a great place to start or, for the more experienced companies, a valuable tool in gauging your progress.
Equip and Support Your Board with Experience and Perspective
Like any major initiative within your company, your board members are the people with their hands on the steering wheel. However, a board without some semblance of ESG experience and expertise will be ill-equipped to help your organization navigate these particularly complex waters.
That makes it essential to have the right combination of experience and perspective on your board, people that ensure proper oversight of your ESG strategy, including internal policies, reporting, and performance. From there, you might even need project and change management teams to help your people get more comfortable with the process. This should also include clear and consistent communication from leadership, explaining what you're doing, why you're doing it, and how it benefits the entire organization.
Evaluate/Re-Evaluate your ERM Strategy and Program
A huge part of ESG is ultimately about risk management for your company. And just like any source of risk, your governance must utilize a comprehensive, forward-looking approach to mitigate potential ESG risks that put your business and people in an uncomfortable set of crosshairs.
To read the full article from RealClear Energy, click here.
