Introduction

Change is ever-lasting. An organization has to be agile & should keep on revisiting its governance strategies & the way it operates for long-term sustainability. The organizations who had foreseen the ESG risks & implemented the risk mitigation strategies a few years back, have seen positive growth & are reaping its benefits today. The organizations who are still considering whether to include ESG risks or not in their overall governance, won’t be able to sustain for too long.

According to a blog post by Leah Rozin, NACD senior research manager, out of the total Russell 3000 index companies, 30% discussed climate change as a risk in their 10-K statement and, only 3% of them considered this risk in their analysis of financial condition & operational results.

This means that over 2000 of the Russell 3000 index companies are yet to discuss climate change risk in their 10K statement and, over 1000 companies are yet to disclose information on ESG risks. These companies fail to understand that their non-disclosure of ESG risks will have a financial impact on their stocks and other operations in the long term. And, sooner or later, the Asset Managers of various Financial firms will not accept this non-disclosure. Thus, the shareholders and stakeholders of such companies will hold the board members accountable for the non-disclosure & its negative impacts.

To avoid such circumstances and to save the organization from such negative impacts, the board must drive these changes by considering the environmental & social impact they can create through positive Corporate Governance. Inclusion of ESG risks & strategies for mitigation of such risks, disclosure of climate change & other risks in their 10K statement will help them create a sustainable organization in the long term. This will result in the shareholders and stakeholders putting more trust in the board members.

What can the board members do?

1. With foresight, the board members should consider taking steps to reduce the number of carbon footprints their products/services are leaving on the environment.
2. Try and introduce products that can reduce the social and environmental impact and be more accountable towards fulfilling Corporate Social Responsibility.
3. Consider the potential ESG & climate risks and opportunities for the company in the short & long run, create strategies and transition accordingly for a greener and sustainable future.

Concluding thoughts

It is now necessary for all the board members to consider ESG & climatic risks when creating long-term strategies. For long-term sustainability & positive financial impact, the board members should also consider hiring only those C-suite executives who are well aware of such risks and can come up with strategies that will take the organization towards a greener & sustainable future. Corporate governance & reduction in environmental impact is the key to long-term sustainability for all the organizations in the coming years. To know more about Corporate Governance & ESG risk mitigation strategies, contact us and we will help you implement it better.