ESG oversight: The corporate director’s guide

Environmental, social and governance (ESG) issues are increasingly seen by shareholders as a window into the future. And a clear hierarchy is emerging. Leading companies view ESG issues as a business imperative. They manage risks while capitalizing on opportunities, including sharing their story and vision for the future, setting themselves up for long-term success and value creation in the process. Laggards still think of ESG as a check-the-box exercise grounded in philanthropic activities.

The tone at the top can make the difference between a company landing at the front or back of the pack. But as our 2020 Annual Corporate Directors Survey found, just under half of directors (45%) tell us that ESG issues are regularly a part of their board’s agenda. There is significant room for improvement.

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How corporate boards can up their ESG oversight game

A company’s ESG strategy spans a wide swath of the organization, requiring multiple functions to work together towards common goals and reporting that tie deeply and directly to the overall business strategy. Many companies are just beginning to pull the pieces together and close oversight from the board is essential in crafting a compelling ESG story and bringing it to life. 

Here are some considerations for the full board and its committees on how to address ESG oversight:

  • Strategy: Are ESG risks and opportunities integrated into the company’s long-term strategy? How is the company measuring and monitoring its progress against milestones and goals set as part of the strategy?
  • Messaging: Do ESG messaging and activities align with the company’s purpose and stakeholder interests?
  • Risk assessment: Have material ESG risks been identified and incorporated into the ERM? Has the board allocated the oversight of these risks to the full board or individual committees?
  • Reporting: What is the best communication platform to use for the company’s ESG disclosures?

 

  • Disclosures: Are the ESG disclosures (both qualitative and quantitative) investor grade? Which ESG frameworks and/or standards is the company using?
  • Processes and controls: Are there processes and controls in place to ensure ESG disclosures are accurate, comparable, and consistent?
  • Assurance: Should independent assurance be obtained to ensure ESG disclosures are reliable?

  • Accountability: Are the ESG goals and milestones effectively integrated into executive compensation plans?

  • Talent and culture: How is management organized to execute the ESG strategy? Are the right people and processes in place? Does the company have a culture which embraces ESG efforts?

  • Engagement: Is the company’s ESG story being effectively communicated to investors and other stakeholders?
  • Board composition: Does the board have the necessary expertise and skills to oversee ESG risks and opportunities?
  • Education: Does the board understand why ESG is important to investors and other stakeholders? Is the board appropriately educated on ESG?

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Paula Loop

Paula Loop

Governance Insights Center Leader, PwC US

Paul DeNicola

Paul DeNicola

Principal, Governance Insights Center, PwC US

Barbara Berlin

Barbara Berlin

Managing Director, Governance Insights Center, PwC US

Tracey-Lee Brown

Tracey-Lee Brown

Senior Manager, Governance Insights Center, PwC US

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