- ESG refers to the process for setting, managing and reporting on an organization’s governance mechanisms, environmental and social impacts, and related policies.
- It’s a business imperative to build an ESG program, as employees and regulators put pressure on organizations to make commitments and show progress.
- As you build and evolve your ESG program, listen to the voice of society, ensure clarity of governance, and own your ESG narrative.
The term “ESG” (environmental, social, governance) is now common parlance in today’s world because thousands of organizations have made ESG commitments. Investors, consumers, governments and citizens expect action. It’s not enough to have an ESG program. Organizations need one that understands stakeholder expectations and impacts corporate strategies and decision making.
“Social and environmental expectations of businesses have changed rapidly in the last 18 months,” says Abbott Martin, VP, Research at Gartner Research. “The law tells us what is necessary in terms of corporate behavior, but it doesn’t ensure a company’s social license to operate or the sustainability of revenue streams.”
It’s the general counsel’s (GC’s) role to ensure the company accounts for evolving societal expectations in corporate planning and governance, legal risk management and corporate disclosures.
Here are three tips as you build and evolve your ESG program.
Download now: The Anatomy of an Effective ESG Program
Tip No. 1: Listen to the voice of society
The internet and social media have turbocharged the ability of the general public to mobilize around the issues that matter most to them. It can quickly become challenging to operate when a company is not meeting the expectations of wider society.
As a matter of survival, listen to the voice of society and respond to its expectations.
“GC are often seen as the voice of the stakeholder in the boardroom,” says Martin. “In order for a business to navigate this new reality, GC will need to educate the board on what society expects of a business beyond simply what is written in law.”
Ensure that the board is aware of what society expects and how that changes over time. Boards must understand the strength of societal concern and level of stakeholder agreement about emerging issues as they develop.
Tip No. 2: Ensure clarity of governance
ESG is a dynamic collection of separate issues “owned” in silos by many different business functions. For example, diversity, equity and inclusion (DEI) may fall to HR, government affairs to legal, investor communications to the IR team and so on.
Gartner recommends that companies form an ESG executive committee composed of senior leaders (think CHROs, heads of DEI, the GC and other functional leaders) as required by the type of industry a business operates in. While this is an important show of commitment, it also consolidates ESG reporting into a central authority. This provides a clear overall picture to the board of directors, ensuring strategic objectives become concrete action in the wider organization.
Here’s a sample ESG governance structure
Download now: Board Briefing for Building an ESG Program
Tip No. 3: Own your ESG narrative
An effective ESG program must be clearly communicated. At the moment, many investors and other stakeholders are not getting much of their ESG information from corporate disclosures because they aren’t finding what they are looking for. Your narrative must rise above the information found in the mix of proxy statements, ESG reports and investor relations websites to share what you’re doing, why, how it matters and the impact of your investments.
“Taking concrete action is clearly the bedrock of a good ESG program,” says Martin. “But failing to adequately communicate the steps a company is taking — to all stakeholders — will undermine the success of such a program and drive stakeholders to seek their information from other sources.”
Take steps to understand what information your stakeholders want and identify the best channels to reach them. Like any corporate disclosures, a business’s ESG reporting must be seen as timely, reliable and trustworthy. Build processes to validate the rigor and quality of ESG metrics and how they are disclosed to stakeholders.
Watch now: Key Components to Create an Effective ESG Program
Ultimately, the GC has a critical role to play in how corporate purpose is defined in the boardroom and in ensuring all stakeholders’ interests are heard. The prize for acting now? Stronger engagement of ESG-oriented customers, investors and talent, and a more resilient, sustainable company.