Environmental, Sustainability and Governance (ESG) issues have gained increasing attention over the past several years as institutional investors and governance leaders are pressing boards to think about the long-term viability of their company, especially in regards to the impact their organization has on the people and communities it touches. Yet, there still seems to be a disconnect, in many respects, between the ESG information boards are providing and the data and disclosure investors feel like they need.
In PwC’s 2018 Annual Corporate Directors Survey, nearly one-third of directors indicated their board “has taken no action” to respond to environmental and sustainability issues; and 29% said, “shareholders are devoting too much attention” to sustainability issues. However, a recent panel discussion, which brought together corporate directors and representatives from BlackRock and the AFL-CIO, revealed that boards may be doing more around ESG oversight than they realize (read full recap here).
Despite these efforts, the primary finding by the panel was that institutional investors are not necessarily looking for more data on ESG. They’re looking for more context around the data boards are providing and more consistency across the data—from year to year and company to company. Boards are quickly working to improve their monitoring, measurement and disclosure of ESG initiatives across the organization; according to a recent report by Forrester and Diligent, corporate secretaries and governance professionals listed ESG issues as their “greatest dissatisfier” when it came to visibility across the organization, indicating that there’s still much work to be done.
In the meantime, boards must ensure they’re approaching ESG proactively, having conversations about how ESG issues relate to their company specifically, and identifying both quantitative and qualitative methods for monitoring ESG issues. Here are 10 checklist items designed to spark board discussion around ESG in 2019.
2019 ESG Checklist for Boards:
- Identify, discuss and adopt a strategy for how your company thinks about ESG.
- Come up with no more than five specific things that are measurable and that relate to your business. Spread these five things across the categories of ESG, don’t just focus on one area, like environmental.
- The quantitative things are the Environmental and the Governance topics. Track these over time with clear reporting so your constituents can see your progress.
- Qualitative topics will measure a range of social, employee well-being and engagement. These may include training, diversity inclusion, anti-harassment, organizational development, and employee wellness. Determine a rubric that allows you to measure your progress on these qualitative areas.
- Understand that diversity is a business imperative. Create programs to ensure that you have a workforce that is representative, at every level, of the diversity of your customers, your investors and your partners.
- Consider whether or not issuing a green bond is right for your company. These issuances have tripled in the last year as energy, automotive and even consumer goods and technology companies have looked to green bonds as a way to finance important sustainability investments. Green bonds are another way to access the huge pools of ESG capital.
- Ensure that your ESG program specifically addresses which of the United Nations 17 Sustainable Development Goals (SDGs), as these are the parameters that many money managers and institutional investors are using to determine if you meet their ESG investment qualifications.
- Pick an outside measuring firm like Sustainalytics and MSCI so you have an outside barometer to measure your progress and a third party to give your program credibility.
- Assign your ESG program to one person, General Counsel, Head of Investor Relations or CFO.
- Define an outreach program to access the major pools of capital ($25 billion) that are investing in ESG friendly companies and is expected to grow to $40B in the coming few years.
Don’t miss the first Diligent Institute report next month on board practices and motivations around ESG. This will be the first research report published by Diligent’s new global research division. You can find more information on the new Diligent Institute website.