Boards on their ESG journey still have some way to go

Despite a growing number of boards adopting and reporting on their ESG performance, translating these efforts into coherent and effective action remains a challenge. That was the consensus among a panel of governance experts who recently gathered on a webinar hosted by Board Agenda with Mazars and Henley Business School, to look at how ESG is becoming a more integral part of board leadership.

The webinar, Leadership in ESG Integration, heard from Filipe Morais of Henley Business School. He explained that, although 78% of boards now published an ESG or sustainability policy, “from those…I’m sure that about 40% have various understandings and are at various points in the journey.

“But in many ways it is also very different simply having a policy and actually embedding ESG right across processes, operations and products and services and so on. They are two different things. So while policy is one thing, reality is unfortunately another. There’s a gap there.”

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Walking the walk

And bridging that gap—turning strategy into action—is the challenge coming for the next generation of board leaders. One panel member, Camilla Hughes, an experienced PLC non-exec, cautioned against focusing on the results of a grand plan, instead urging boards to consider “building on the first principles of what the business does, what its exposures are and look at the materiality of that and then breaking it down to ask ‘where can the initial targets be reached?’”

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‘Boards need to consider building on the first principles of what the business does and what its exposures are’ — Camilla Hughes, NED

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It was a point echoed by the third panel member, Chris Fuggle, a partner and global head of sustainability at professional services firm Mazars, who agreed that the fact that people are looking for that one answer shows there is still a lot of demystifying needed around board responsibilities around ESG. And that means boards taking a lead from the off.

“The more that you can involve people at the beginning, the better. If the whole board are involved in this committee at the beginning, then great, just to get a feel for what the topic is really all about,” he explained.

“And then, the more people that can be involved in the materiality assessment—to really understand why these ESG topics can impact their business—means you’ve got smart people around the table: they’ll naturally have the answer. But if you haven’t gone through that induction, that training, that demystification, you’re a bit of a loss as to think how it should work.”

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Inside, looking out?

Of course, the work of the board on this issue extends beyond the boardroom. Getting engagement from stakeholders is also crucial, and Filipe Morais pointed out that although 75% of companies are engaging extensively internally with their employees—demonstrating a healthy focus on understanding how non-financial aspects have an impact on the bottom line—but now have to turn to external impacts.

“They need to consider: how are we impacting on others and how can we help sustain communities, sustain a way of living that is sustainable overall, and what’s the role of business playing that part? Because I think that non-financial drivers drive value,” Morais argued.

“That’s not a new story. What is new is to understand how the externalities can be managed.”

The webinar also examined the importance of data in managing ESG performance, the role of external advisers, and the difficulty of connecting ESG with commercial concerns.

You can watch the full webinar here.

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Trevor Pryer,

Board Agenda

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