The Board's ESG radar for 2022
Commitment to ESG issues is critical. It is not only important that ESG is on the board's agenda a few times a year, but also that the company integrates sustainability issues and thinking throughout the organization. In addition to internal leadership, it is also critical that the board acquires the right skills and understands the external requirements for long-term success. The board of directors must regularly monitor its "ESG radar".
Here are our recommendations on what should be on the radar of boards in 2022.
CLIMATE CHANGE ACTION
While ESG is a much broader topic than climate change, encompassing issues such as social mobility, diversity, human and corporate rights, and sustainable and social investing, climate change is at the center of people's concerns. To date, most litigation has focused on disclosure: companies and boards have failed to properly disclose the significant risks associated with climate change.
Cybersecurity is fast becoming one of the most important ESG issues, especially when it comes to corporate sustainability. Determining a company's cyber resilience is becoming increasingly important to investors, and assessing potential cyber risks should be an essential part of any M&A process.
DIVERSITY AT BOARD LEVEL
An increasing number of lawsuits related to board diversity (particularly in the United States) typically allege that directors have breached their fiduciary duties because of insufficient diversity on the board or in management positions. Several studies also show that diversity improves a board's risk management and financial performance.
Cases of companies making misleading claims to be more environmentally friendly and responsible have already been brought to court in the U.S., and enforcement action by regulators is imminent. The Task Force on Climate-Related Financial Reporting, the U.S. Securities and Exchange Commission (SEC), European regulators and the U.K. Financial Conduct Authority are also looking into the issue. Now more than ever, greenwashing must not be tolerated, not only because it misleads stakeholders, but also because it destroys corporate value.
POLLUTION AND ENVIRONMENTAL DISASTERS
For many companies, the pandemic has proven to be a huge learning curve, requiring the board of directors to be at the center of the company's crisis management efforts. Similarly, following events such as an oil spill, chemical or wastewater release in an environmentally sensitive area, or toxic fumes in manufacturing facilities, boards of directors of affected companies are increasingly asked whether they have adequate risk management procedures in place to prevent such incidents and how aware they were of the possibility of them happening.
This list is not exhaustive, but represents a minimal set of topics that have gained importance and should become even more relevant in 2022. Such topics would typically be part of our analysis module. www.stratesgy.com/analysis