Amidst heightened scrutiny over greenwashing, businesses are reevaluating their governance frameworks to enhance environmental, social, and governance (ESG). This requires a nuanced approach that aligns an organization’s risks, strategies, reporting, communication, and continuous improvement work.

Steps to Improve ESG Governance

Effective boards maintain a clear focus on strategic ESG objectives, fostering good governance, and promoting a culture of transparency and accountability. This is characterized by informed decision-making, enhanced ability to manage risks, and improved communication among board members and with stakeholders.

Increased effectiveness supports success of the organization’s ESG work, helping it to navigate challenges and capitalize on opportunities. Boards can take the following steps to help improve ESG governance.

• Understand risks
• Integrate strategies
• Understand reporting practices
• Reinforce communication standards
• Continue improvement

Understand Risks

The tenets of ESG practices have provided organizations with a comprehensive framework for understanding their risk environment. Board members should develop a deep understanding of which ESG issues are most relevant to their organization's industry and operations.

Board members can help create a better risk approach by identifying and assessing ESG-related risks that could impact the organization's long-term performance. They can also work with the management team to develop strategies for mitigating these risks and incorporate them into the overall risk management framework.

Integrate Strategy

Proactively aligning ESG principles with an organization’s strategic plan can strengthen regulatory compliance and demonstrate a commitment to responsible governance. An integrated ESG and operational strategy fosters resilience, innovation, and sustainable growth.

The following steps can be taken to further integrate your ESG strategy.

• Bring together and build upon work that’s already taking place.
• Embed ESG factors into decision-making processes and risk management frameworks.
• Foster a long-term perspective that recognizes the importance of strong ESG practices for the organization's resilience and success over time.
• Regularly review and update ESG strategies and goals to adapt to changing regulatory environments and stakeholder expectations.

Understand ESG Reporting

Prioritizing measurable outcomes related to environmental impact, social responsibility, and ethical governance, can help a board steer an organization toward achievement of its ESG strategy and business goals.

Understanding the full breadth or your reporting capabilities is key to maintaining ESG reporting standards, which can help avoid the perception of greenwashing. Some actionable items relate to ESG reporting are to:

• Examine internal and external facing reports to ensure stakeholders receive information.
• Embrace and explain reporting standard updates.
• Establish clear ESG key performance indicators (KPIs) that are relevant to your organization and industry.
• Implement robust reporting mechanisms to communicate ESG performance.
• Monitor regulatory environment to ensure reporting is responsive to emerging requirements.
• Use financial reporting internal controls to guide development of ESG reporting.

Reinforce Communication

Enhanced ESG governance could help communication flow between the board and committees. Streamline the process through the following steps.

• Review your ESG reporting framework to make it easier for committees to provide relevant information.
• Assess your reporting schedule to ensure timeliness with updates.
• Encourage cross-committee collaboration to manage ESG issues.
• Leverage technology to streamline and standardize communications.

Invest in Ongoing Improvement

In the continually changing ESG landscape, the following steps can help the board be able to successfully navigate ESG issues on an ongoing basis.

• Ensure the board has diverse perspectives and expertise, including knowledge of ESG issues, to facilitate well-informed decision-making.
• Engage with key stakeholders regularly, including shareholders, employees, customers, and communities, to understand their expectations and concerns regarding ESG issues.
• Seek input from external experts and organizations to enhance the board's perspective.
• Implement regular training sessions on emerging ESG trends.

ESG Responsibilities: Board Versus Management

The most effective boards maintain strong partnerships with management, typically rooted in a clear understanding of each party’s role.

Both the board and management play distinct yet interconnected roles in relation to ESG responsibilities. Clearly defined roles, responsibilities, and expectations can further enhance the partnership between these two parties contributing to overall effectiveness.

Understanding the distinction between the ESG roles of the board and management is central to effective governance. Clear delineation of roles for a more organized and systematic approach to managing ESG issues, which in turn enhances the overall efficiency of the organization.

Accountability is another key aspect that benefits from this distinction. Understanding who has the authority to make decisions on various ESG issues can streamline the decision-making process, reducing delays, and confusion. This can significantly enhance the effectiveness of ESG implementation and governance.

Common board responsibilities are to:

• Educate directors on ESG risks and opportunities.
• Integrate ESG risks into board processes and establish goals.
• Monitor ESG risks, opportunities, and KPIs.
• Oversee and approve ESG disclosures.

Common management responsibilities are to:

• Identify ESG risks and opportunities.
• Incorporate ESG risks and opportunities into strategy.
• Disclose ESG metrics, targets, and material factors.

Common ESG responsibilities between a board and a management team are to:

• Report on overall ESG strategy annually.
• Establish organizational mission, vision, and values.
• Set direction for ESG strategy to be implemented by management.
• Monitor the most important ESG metrics.
• Report on KPI trends over time and progress toward goals.
• Approve relevant policies.
• Ensure an appropriate ESG strategy is in place.

We’re Here to Help

For guidance on developing and implementing an ESG strategy for your company, contact your Moss Adams professional.

Additional Resources

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