by Daphne Biliouri-Grant

There is no doubt that 2021 has seen an increased emphasis in the importance of ESG considerations for the business community and the significance of integrating ESG policies and practices within the business strategy of companies.

However, despite the growing interest and the increased need for strong ESG knowledge base and expertise, in reality companies have to expand their knowledge from a limited pool of resources and experts.

The lack of sufficient ESG knowledge is also reflected within one of the most instrumental decision-making bodies of a corporate entity – the boardroom.

According to Tensie Wheelan, Director of the Center for Sustainable Business at NYU Stern School of Business, in a recent article for the Wall Street Journal, boards in all sectors are faced with a lack of ESG credentials. As she highlighted: “It isn’t that somebody on the board needs to be a climate change scientist, but board members need to understand the material issues for their company, the questions they need to ask, and where they can get expertise”.

Board members are responsible for the development of a company’s strategy, therefore they need to be able to identify strategic risks as well as opportunities. They need to be able to have a clear understanding of how the integration of ESG considerations within the business strategy can support their role and fulfil their responsibilities.

And that can come from moving away from the traditional mindset of what constitutes a risk or an opportunity and being able to incorporate a different perspective that is value-driven and stems from ESG principles.

In their efforts to strengthen the board, board members need to be educated around ESG issues, whether that is through engaging an ESG expert or by completing relevant training courses. This is the only way to accelerate the learning process and provide board members with the tools they need to successfully and effectively integrate ESG issues within the corporate strategy and oversee the operationalisation of such issues.

The increasing need for non-financial reporting is going to add more pressure on boards to be able to respond to such requirements. Therefore, it is inevitable that the Audit Committee will be expected to provide a robust assessment of non-financial concerns. While the Risk Committee will need to understand potential ESG-related risks that may emerge and develop a response plan on how to address such risks and how to manage the relevant stakeholders.

In an era of stakeholder capitalism where business leaders recognise the importance of all stakeholders, it is also the board’s responsibility to forge the right partnerships with all relevant stakeholders, both internal and external. This is another reason why boards need to be well-versed when it comes to ESG considerations, as they will need to establish a clear plan of action in terms of their stakeholder engagement in order to protect the company’s interests. By developing a strong understanding of ESG issues, they can measure the level of influence each stakeholder has developed and how that could impact future engagement.

It is also the responsibility of the board to bridge the gap on how ESG is communicated amongst the company’s divisions. Board members need to be proactive in establishing the correct communication channels and ensure that any communication challenges are addressed.

There is a clear need for boards to act as a sounding board for the senior executive team and help them crystallise the strategic objectives of the company. It is the board’s role to help the senior executive team to identify and establish its corporate purpose and to that effect, a clear understanding of the company’s ESG priorities will build the foundation for that process.

Afterall, it is the realisation that only when a company fully aligns its corporate purpose with ESG considerations that it can achieve a leadership role within its industry.  ESG drivers are based on integrity and a set of values that need to be evident at all levels of management and throughout its workforce. Integrity as a driver reinforces the fact that ESG considerations should be embedded in the strategy of the company and represent its corporate purpose, and be amplified by the board.

It is integrity that serves as the foundation that guides a company’s actions and behaviours and helps board members fulfil their responsibilities.