ESG 101 – Starting with Governance (Notes from October 2021 podcast)
Alongside colleagues from Gunnercooke, we held our first ESG podcast recordinign in October 2021. These are the notes.
ESG stands for Environmental, Social and Governance. As many organisations turn their focus to the impact they have on the environment and the society they engage with, the challenge is often ‘where to start’. But whilst it is easy to dive into investing time and money into specific projects, a critical first step often overlooked is the ‘G’, Governance.
In the first of our ESG 101 series, we discussed the importance of Governance – and what this might look like in practice. Key points there were debated included:
As a Board, where do we start?
Be clear on what motivates you to focus on ESG? Start with purpose – which leads to trust: Being clear on what you are in business for and why it is at the centre of any authentic ESG strategy. It is effectively your DNA. Environmental and social goals may not be explicitly stated in your purpose, but knowing what you are in business for provides any management team with a lens through which to make decisions, whether assessing strategic options, judging risk or assessing impact.
How to make ESG relevant to your employees? Using purpose flows through your company – and how your values and culture play out in real life and how they determine success or failure: ESG activities will be very difficult to sustain unless your employees and other stakeholders are on-board. So as your values and culture also flow from your purpose, you need to understand how these come to life in practice. ESG initiatives will fail if there is not a clear buy-in from employees across the business.
Trust at the centre - do not overplay your credentials: You may feel pressure to show results quickly, and you may feel pressure to report success across your ESG initiatives early. But be careful. Claims of ‘greenwashing’ are becoming more prevalent...so make sure you tell a story that accurately reflects where you are, what you have achieved – and what you still need to work on.
Prioritising ESG. Be aware of materiality...and risk: As with any investment of time or money, keep a clear eye on how material any issue is to your business. You will have longer-term risks to consider (and ESG may play a growing role in these), but start where you feel you have initiatives that will have the greatest impact.
Do I need a specific ESG Director on the Board?: There is a fiduciary duty on directors including non-executives (NEDs) to take ESG into consideration. So whilst you may not need a formal ‘ESG expert’ on the board, stating that you are not aware of, or have no focus on ESG means you are at risk of current or future investors – as well as employees and customers - being unimpressed.
How do we know if we have the right Governance structures in place? Most organisations will undertake board governance reviews over time. These should focus on how purpose, values and culture are brought to life, but also whether there are specific gaps (in skills, experience or approach) on the board. For Corporate Purpose, McKinsey proposes the following model:
BUILD: build authentic purpose. Purpose should be shared throughout executive leadership, build the connection with the stakeholders to better understand the organization’s core values, strengths, weaknesses, outlook
OWN: make sure the board includes ESG considerations in their decision-making process and as a lens through which to consider other activities
ACCESS: make sure your approach to ESG, including goals you set are clear and measurable.
RE-ENFORCE: reinforce purpose (and your focus on ESG) in key decisions through accurate minuting and clear communications
DRIVE: drive accountability through management and evaluate art set intervals, linking achievements to management compensation.
ESG is a huge topic. But starting with using the points above to put in place a clear Governance structure for ESG and rationale for why you are focusing on it will give you a strong base to build from.