With all the debate, green-washing and an imminent global regulatory guideline on environmental, social and governance (ESG) issues, enterprise boards need all the help they can get on the topic.

According to the Centre for Audit Quality, more than 90 per cent of listed enterprises have documented some type of ESG activity.

Despite the higher focus on this issue, many boards are struggling to find the right way forward. We see a veritable industry emerging in this area with experts, consultants and opinion makers offering all types of advice and action agenda.

Now that many board members are aware that ESG brings up numerous governance challenges how about a dedicated board ESG committee?

Boards must consider the increasing need for aligning ESG with business goals, regulatory compliance, converging standards, analyst requirement for ESG disclosure, and increasing cries for assurance. An exclusive committee will be a good idea to address the many issues involved.

But another board committee can throw up some tricky issues. Specific ESG committees are usually an evolution of a previous corporate responsibility, sustainability, environmental, or similar committee.

It is often grown out of a public policy or social commitment, and seen at regulated entities in the pharma, healthcare or banking sectors. A 2022 Exequity study of Standard & Poor 100 companies revealed that 31 per cent of them had some form of a distinct ESG board committee. Yet, a larger study by Diligent and Spencer-Stuart found just 15 per cent having a distinct ESG board committee. Most still use the full board, or nomination or governance committee for this purpose.

Many ESG committees are formed with a magpie approach, gathering social, environmental, sustainability, risk, disclosure and governance tidbits from across the board. A better approach will be to treat it like a real committee, with a charter and clear outline of duties.

Adopt best practice on board compensation and budgeting for research, conferences and outside consultants. The ESG committee will face a far brighter investor, analyst and public spotlight than the rest of the board. That means devoting extra care to good, comprehensive agendas and minute taking of the committee’s work.

In addition, the membership on the ESG committee will also be scrutinised critically for expertise and governance capabilities. Disclosure, audit, risk oversight and legal vitae make up the usual suspects. But corporate sustainability executives who have managed substantive company-wide efforts will be a better fit.

Talent hunt

Finding the right “sustainability experts” is often a challenge. Inducting “unconventional” directors who bring the much-needed ESG skills to the committee will send a powerful message to all stakeholders.

Executives who have shown best practice on de-carbonisation, DEI (diversity, equity, inclusion), workplace safety, and related topics can bring more board depth on ESG, and display company commitment. They are also often younger and more diverse. Vet potential ESG directors for skills not seen on the usual matrices. Look for ability to acquire new skills, curiosity, and evidence that they ask questions outside the board comfort zone.

Board competitiveness can only come from a focussed effort to guide the enterprise to understand the implications of ESG and how to integrate that into the strategic planning process. The board also needs to be on top of the risk issues involving non-compliance with ESG.

Another issue boards in the GCC will have to consider is the use of external evaluators for their ESG progress and disclosure.

How shall India Inc boards put ESG committees to work in practice? Use the typical Indian start-up style of copy-paste and feel free to copy copiously ideas from the leaders on the topic! Tenet Healthcare, Tronox, Exor and Kaiser Aluminum are a few corporations that have published their board ESG committee charters.

Muneer is co-founder of the non-profit Medici Institute, and Ralph is global board advisor, coach and publisher

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