Board Role in ESG


 
Tom Fox speaks on the role of boards and management in ESG in this episode of the ESG Report. He was inspired by a recent article in the Harvard Law School Forum on Corporate Governance, written by Jurgita Ashley, Randi Van Morrison, et al., entitled ESG Governance: Board and Management Roles & Responsibilities
 

 
Oversight
The board has the responsibility of oversight in ESG matters, which can include issues running the gamut from human capital to climate change to the supply chain. “There is no consensus right now on key topics or issues encompassed under the ESG categories,” Tom tells listeners. Each stakeholder may have their own criteria about what they see as a priority, but they all want to see “demonstrable and verifiable results”. More companies want to see enhanced board oversight and management responsibility for business-relevant ESG issues, but there is no universally accepted approach on how to structure board oversight as it depends on varying factors across organizations. “Key for companies,” Tom remarks, “is to develop an oversight structure with accountability – which can include both corporate charters and corporate governance guidelines as well as internal processes and procedures – which are appropriate for your organization.” The next step is to develop corresponding disclosures to inform investors and stakeholders how the board is overseeing these issues, he continues. 
 
Board Oversight Approaches
Tom shares ways ESG oversight responsibilities can be allocated within the board, including:

  • Full board oversight – suitable for smaller companies or smaller boards. This approach raises the profile of ESG in the company; however, ESG issues may not be fully examined or addressed for lack of time on the board’s agenda.
  • Mix of full board and committee oversight – the full board has oversight on the most significant ESG matters, and other matters are dealt with by appropriate standing committees who report to the board. “This approach can help integrate ESG considerations into business functions,” Tom points out.
  • Standalone ESG committee – this approach allows for regular and in-depth discussions of ESG considerations but runs the risk of separating ESG from broader strategic and financial discussions. If you choose this approach, Tom advises, include chairs from other representative committees.
  • Multiple existing board committees for oversight of discrete ESG matters.

 
Reporting to the Board
Many compliance professionals struggle with what and how to report to the board regarding ESG. “I think the first thing to do is assess your Board of Directors’ ESG competencies,” Tom advises. Most board members will need to be trained on their role of ESG oversight. What you ultimately need to report, he points out, are the ESG metrics deemed most significant to the company. There’s also no universal rule on how often to report. The authors of the article agree, however, that “a regular reporting cadence is important in light of the directors’ fiduciary oversight at many companies.” 
 
Resources
Tom Fox email
FCPA Compliance and Ethics blog
Article: ESG Governance: Board and Management Roles & Responsibilities
 
 

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