There is mounting pressure for organisations to actively integrate environmental, social and governance (ESG) issues into their organisation strategy. Board of Directors across nearly every industry are expected to be competent in navigating the headwinds of ESG. Yet many companies’ board and executive leaders are still unsure on how to approach ESG and manage the communications with their stakeholders.
What exactly constitutes an ESG competent Board of Directors? While there are many schools of thought, they all agree that a competent board should be able to give strategic oversight to ESG risks and opportunities that help optimise shareholder value while building investor confidence in an organisation’s long-term performance.
Key characteristics of an ESG competent board is expertise. It is clear that the ESG sphere is constantly evolving and subject matter experts are needed. Expertise in all aspects of ESG issues including reporting and latest trends is required to fully leverage a boards’ contribution. As such, qualified board members in the ESG sphere are an added advantage to any board and will have significant positive impact on the overall ESG journey of an organisation.
Another characteristic is ESG fluency which allows a fluent board to connect ESG issues to the strategic roadmap of an organisation for better decision making. Although it is important to have individual board members with ESG expertise as detailed above, it does not indicate ESG fluency. ESG fluency requires a board to collectively understand issues and ask the right questions of management. These nuanced conversations are only possible if the board can act as a cohesive and deliberate body that is fluent in ESG issues. A popular gap analysis tool used is a board Skills Matrix that can identify individual ESG expertise and overall ESG fluency in a board of directors.
Although ESG expertise and fluency are key, the cornerstone to an ESG competent Board of Directors is continual learning. The dynamic nature of ESG requires a board that is agile and adept in evolving to oversee, enable, and support delivery of ESG strategy. To this end a continuous learning agenda that is aligned with the organisation’s mission and goals is required. However, studies show that few organisations have a true learning culture. Challenges for boards include lack of time and knowledge because opportunities for training and development are often ignored due to impending deadlines and short-term goals. To develop a continuous learning agenda, boards must first prioritise establishing a learning agenda.
It cannot be denied that a competent board is required to successfully steer an organisation through the complexities of ESG. Any organisation that has yet to ensure they have the right skillsets on their board is strongly urged to understand their key ESG concerns and enlist a board of directors that is up to the task.