3 ways boards can lead ESG initiatives

Christopher McClure, Wes Kelly
10/20/2022
Three ways to lead ESG

What ESG initiatives are most vital for boards to understand? Our specialists discuss how boards and ESG teams can collaborate to make ESG a priority.

Board members are tasked with the long-term financial security of an organization, and now more than ever, environmental, social, and governance (ESG) initiatives factor into that security. However, there are so many priorities, trends, and rapidly evolving ESG initiatives that the board must be diligent in staying current.

By working with the company’s cross-functional ESG team, boards can get a complete picture of ESG roles and responsibilities within their organizations and gain the knowledge about ESG initiatives that they need for solid decision-making.

Here are three ways the board can collaborate with the ESG team to help make ESG a priority for the entire organization.

1. Get educated on ESG initiatives

It’s vital that the board has knowledge of ESG trends, regulatory requirements, and other key stakeholder needs. With so many facets to ESG, gathering that knowledge can be a complex and complicated task. But with the help of the cross-functional ESG team, it’s an achievable one.

The board can start by engaging in ESG training, a core component of which should focus on regulatory obligations, including the upcoming climate-related disclosure proposal from the Securities and Exchange Commission (SEC). The ESG team can help facilitate this training, with assistance from external legal counsel and consultants as needed.

However, climate risk is only one aspect of the regulatory landscape. In the near term, the SEC likely will issue proposals on human capital disclosures and corporate board diversity. Plus, many other global regulations regarding forced labor, responsible sourcing, and supply chain due diligence could be impactful. The board will want to know what’s on the horizon and gain an understanding of how these proposals could affect the organization in the short and long term – both as a direct reporting obligation and through data requests from its global customers.

The board should also review the ESG goals and commitments that the company has made, which could include commitments related to employee diversity, conversion of energy to qualify for green financing, and energy use for buildings, property, and equipment. The board should be familiar with management's plans to train employees on ESG initiatives and acquire dedicated ESG talent.

Looking for the latest information on ESG?
Sign up to receive our monthly newsletter, RE: ESG, and other ESG insights.

Board education: Questions to ask

  • Who can educate the board on proposed ESG regulatory rules?
  • What ESG commitments has the company made, and who maintains the listing of those commitments? Are the ESG team and the board confident that the listing is complete?
  • Has the organization determined its boundaries and various sources of Scope 1, 2, and 3 greenhouse gas (GHG) emissions data? Is the company part of the supply chain for other companies, and as a result, required to provide Scope 3 emissions data to those companies?
  • Is there is an adequate level of ESG knowledge and skill sets within the organization? What plans are in place for training employees across the organization on ESG initiatives, and how will these plans be communicated?

2. Share your ESG story

From investors to employees to customers, stakeholders are interested in a company's strategy, purpose, and vision regarding ESG initiatives. It's important for the ESG team to identify which ESG topics and metrics are most relevant to a company’s stakeholders and to communicate those findings to the board. For example, in some organizations, diversity might be the highest priority for stakeholders. In others, GHG emissions or responsible sourcing might be more important.

ESG teams are responsible for measuring and monitoring ESG metrics and assessing the weight of risks on the company's strategy. However, the board should review the metrics and risk assessments and make sure they understand the short- and long-term consequences for the organization.

That said, an organization’s ESG story isn’t just a set-it-and-forget-it undertaking. The board needs to work with ESG teams to create a plan for communicating ESG strategy and progress to stakeholders. Both the board and ESG team should also keep up on industry and stakeholder demands and incorporate those into their story (or shift their priorities) as needed.

ESG story: Questions to ask

  • What are stakeholders' views on the company’s relevant ESG metrics?
  • How are ESG matters – including strategy, risk assessment, performance against goals, and metrics – being communicated to various stakeholder groups?
  • Have ESG initiatives been incorporated in the company's long-term strategy and its risk assessment process?
  • If the company has made ESG commitments, how is it tracking its performance against its goals and commitments?
  • How does the team monitor what competitors are doing regarding ESG?

3. Guide and govern ESG initiatives

While the board is ultimately responsible for guiding and governing ESG initiatives, working closely with the ESG team is essential for success. It's important for the board to work with the ESG team on monitoring global ESG regulations, determining a timeline for compliance with those regulations, and communicating needs and expectations along the way. The board should also consider engaging in discussions with external assurance providers as needed.

Guiding and governing: Questions to ask

  • What board committees will be charged with oversight of ESG?
  • What members within the organization will make up the ESG team? Does the team comprise a cross-functional group of individuals from various groups and departments within the company?
  • Who will be responsible for defining and communicating ESG initiatives?
  • What are the ESG team’s views on how the proposed ESG regulatory rules might affect the company, and does the board agree with those views?
  • How is the ESG team monitoring changes and developments in the various ESG regulatory proposals, and how are those changes being communicated to the board?
  • What are the biggest challenges the proposed ESG regulatory rules might pose for the organization, and how might they be overcome?

Collaborate to set priorities

Ultimately, boards have final oversight for ESG initiatives and strategy, which means they set the tone for ESG. When the board and the cross-functional ESG team work together, the board can confidently lead the charge and establish ESG as a priority for everyone in the organization.
Find even more ESG-related information in our ESG resource center.

Contact our integrated ESG team

If you're wondering how to take the next step in your ESG program, our ESG team can help. Contact us today to find out how we can help educate the board about your ESG initiatives.
Chris McClure - social
Christopher McClure
Partner, ESG Services Leader
people
Wes Kelly
Partner, Assurance Professional Practice