Call to Action — ESG

With issues related to the "S" of ESG rated highly in our survey and matters related to the "E" and "G" evolving, many organisations have sustainability reporting and its related operational activities and risks on their radar. ESG has its share of critics and some ESG initiatives are under increased financial pressure as CEOs and investors focus more sharply on the risk-reward balance in the face of economic and geopolitical headwinds. The near-term challenge related to ESG is navigating uncertainties in the marketplace while keeping an eye on positioning the organisation and its values, reputation and brand for the long term. To that end, the following steps merit consideration:

• Prioritise with a balanced perspective. Give the rising cost of capital its due consideration when evaluating and prioritising ESG initiatives. At the same time, be mindful of regulatory and stakeholder interests as the focus on preserving financial vibrancy intensifies. View ESG considerations the same way everything else involving allocation of capital and the future is viewed. For example, what is the strategic opportunity, what are the risks and how is return on capital measured?
• Consider ESG a fiduciary responsibility. Don’t view ESG as all and only about climate change and reporting. Rather, view it through the lens of a leader’s fiduciary responsibility to ensure the long-term viability and well-being of the company by addressing the opportunities and risks posed by relevant ESG matters.
• Tie ESG into the enterprise risk management (ERM) discipline. Think of sustainability priorities as a compendium of risks to the organisation (e.g., climate change, talent retention, succession, supply chain, DEI, workforce planning, cyber, and board composition and culture, to name a few) that relate to the “E,” the “S” and the “G” in ESG. Add these risks to the scope of enterprise risk assessments and integrate them into strategy setting, performance management and, if critical to the enterprise, periodic reporting to the executive team and board.
• Get it together in the proper order. Don’t let the reporting tail wag the operational dog. First understand where you stand, then assess what you want to accomplish, and then (and only then) define how you’ll report on activities and outcomes.
• Establish accountability for results. Set goals and create accountability around ESG imperatives and rank those imperatives by level of importance considering the ongoing storyline the company narrates to the street. Follow up and recalibrate regularly while keeping an eye toward delivering expected financial results.