5 actions boards of directors should take to get started on the ESG journey

As all stakeholders – investors, employees, consumers and the broader community increasingly call on companies to focus on environmental, social and governance (ESG) goals, the role of the board of directors in ensuring business sustainability has grown more critical. Boards are ultimately accountable for the strategies and actions their organizations take to meet the needs of such a wide range of stakeholders. They can’t simply delegate responsibility for ESG.

The demands of multi-stakeholder capitalism

Stakeholders are calling on companies to adopt the ethos of “do good, do well, do right.” Investors want a business to generate sufficient returns (do well) but they also want the organization to do so in a way that aligns with their values (do good) while addressing the needs of all constituents (do right). Regulatory requirements have also grown, especially in terms of disclosures.

Employees are increasingly seeking companies with values that are more consistent with their own. And customers are “voting with their wallets” – purchasing products and services from businesses with values more like their own. Regardless of whether the focus is decarbonization, ensuring diversity, equity and inclusion within the workforce, or treating employees and business partners fairly and ethically, multi-stakeholder capitalism sets high expectations for businesses.

Meeting these demands falls to boards of directors, who must find the right balance between short-term returns and longer-term sustainability. Failure to discharge duty-of-care responsibilities could impact the business (litigation risks, erosion of shareholder value, loss of brand equity and challenges attracting and retaining talent) as well as create consequences for the directors who could lose their seats.

How boards of directors can get ESG right

Though boards may be challenged to meet a wide array of rising expectations, there are several steps boards can take to meet these expectations and set their organizations on the path to success:

Meeting ESG and sustainability goals can be challenging, requiring the commitment and focus of the board as well as management. Successful companies will be those where management sees ESG as a critical business imperative and drives the change agenda with strong support from the board.

Indeed, one of the more important responsibilities of the board is to assemble a management team that is committed to the business benefits of a well-defined ESG agenda. ESG is clearly a business imperative, and the board plays a critical role in holding management accountable, advancing ESG, and balancing risks and opportunities – both in the short and long term.