In the ever-changing and disruptive business era Environmental, social and governance concerns are positioned at the top of the Board’s agenda. These concerns are central in terms of overall business growth and sustainability. To achieve its strategic objectives or goals, the organization’s need to align the ESG concerns and increasing stakeholder’s expectation with Enterprise Risk Management system. By expanding the Enterprise Risk Management system to include the ESG concerns help connect risk, strategy and informed decision making for the organization’s to be more risk resilient and competitive. This integration of ESG risks with Enterprise Risk Management system helps in effective and efficient disclosure of ESG information and enable the board’s and the c-suite’s to access the overall business resources and allocate them more effectively and efficiently.

Implications of the Lack of ESG Oversight

As per the recent news, the Directors at Exxon Mobile Corp are facing a withhold campaign from two of its shareholders alleging that the company has failed to be responsive towards climate change. The Investor’s and shareholder’s concern toward the Environmental, Social and Governance issues are becoming more and more urgent. Depending upon the Company’s Industry, Market Value and its Supply Chain, the Investor’s and Shareholder’s manifest differently. They have started showing their voice of dissatisfaction with Board’s that fail to drive any meaningful strategic decisions around ESG related issues. The need for transparency and standardization of the ESG framework has become increasingly important with ESG investments going mainstream and increasing the number of investors and shareholders.

ESG related risk has now become board-level risks as the expectations of investors and shareholders around the ESG related issues continue to increase. Investors and shareholders consider that ESG factors provide critical insights into the company’s performance and business sustainability. Without transparent and consistent sustainability disclosure, investors cannot execute their investment strategies effectively. This need has intensified the push by investors to engage with companies to encourage more meaningful disclosures.

What the board’s need to do to stay ahead in 2019 and the years ahead?

The boards can take the following steps and ask questions so as to get a better command to emerging ESG risks;

• Increasing the frequency of management reporting of ESG risks to the board.
• Standardizing the board agenda with ESG related issue.
• Clarify the responsibility of a board committee with ESG mandate.
• Ensuring that management has established clear ESG and sustainability responsibilities for functions such as finance, investor relations, legal, risk, strategy, talent, and operations.
• Establishing a disclosure strategy that prioritizes the needs of stakeholders, aligns ESG issues to business value, and uses sustainability standards to drive meaningful disclosure.
• Ensuring that management has taken steps to establish sustainability data management systems, document reporting processes, and controls, engage internal audit in sustainability reporting to increase confidence in disclosures and improve the quality of the data used in decision making and risk management.
• Ensuring that ESG risks are incorporated into the ERM processes of the organization.

Managing and disclosing Environmental, Social and Governance risks is a compliance mandate in every jurisdiction. Identifying and being transparent about ESG issues is very important for the organization’s survival and long term sustainability. ESG Risk management is not just about compliance; it is about doing business with Confidence for long term Sustainability.

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