How well does

your board

understand ESG?

Is your board prepared for

the primary risks associated
with climate change?

Boardroom survival guide

Introduction

Environmental, social and governance (ESG) is now a Does your board have an ESG policy, for example? What about a
primary concern for boards and directors across the globe. climate change framework?

Global efforts to combat climate change have reached a Here we examine why ESG is such a big issue and how boards and
turning point. As nations implement their emission
their members can prepare for ESG as it evolves.
reduction strategies, directors should evaluate the climate-
related risks that their companies face.

Boardroom survival guide

You must manage the risks

Companies should ensure that their assets and their long-term

business strategies are resilient to climatic changes, as they
would any other risk that could impact the company.

For example, have your directors developed a framework to help

them recognise climate risks that may affect companies in your
specific sector?

The main primary risks associated with climate change are

physical, regulatory, and economic risks.

A board's ESG policy needs to encourage effective

environmental and sustainability practices to improve a
company's performance.

Boardroom survival guide

The three primary risks

Physical risks
As climate change progresses, physical risks can appear in flooding,
drought, extreme temperatures, and the increasing frequency of
extreme weather events.

Infrastructure could be damaged, supply chains could be disrupted, raw

materials could become scarce, and human health could be affected.

Regulatory risks
Regulatory risk refers to changes in the regulatory landscape that may
impact existing business operations or increase operational costs.

Economic risks
As individuals become more aware of their role in climate change,
economic risks mean changing consumer habits and rising climate
consciousness.

A company's sustainability practices will either be an advantage or a

reputational risk. Where does your organisation stand?

Boardroom survival guide

Do you have ESG expertise on board?
Companies have faced growing climate risks for years. The warming
of the planet, fossil fuel use, and increasing global concern about the
need for change are all causing investors to notice.
Your board has a fundamental responsibility to engage on relevant
ESG issues with a thoughtful approach because you are fiduciaries
and stewards of your organisation's long-term performance.
ESG competence is the bedrock to all of this..
Boardroom survival guide
Is your board climate competent?
For years, major investors have pressed companies to make sure their
boards are climate competent.
So, how can boards show investors and the broader public that they
are taking ESG seriously?
CEOs, chairs and company directors in high-risk sectors should assess
their boards' composition and bring in climate experts to help educate
them on climate risks.
You can onboard relevant expertise

Shareholders know that adding a token climate 'expert' will not change
board dynamics or decision-making.

To ensure critical competencies are covered, many boards use a skills

matrix. This can be used to systematically integrate climate and other
ESG expertise.

The skills required for different industries and companies may differ.
Still, every board needs to consider how skills may have evolved over
time and proactively address skills gaps.

Refreshment policies for board members, limiting board tenure, make

adding these skills over time.

Nominating committees can also hire directors who have experience

engaging with or representative stakeholder groups.

As a result, a boardroom can be enriched by expertise and diverse

backgrounds, which helps break down outdated assumptions.

By seeking out candidates with various attributes, expertise, and

desired skills, nomination committees can prepare their organisations
for the future.

Boardroom survival guide

A climate and ESG education program
for the whole board
In addition to ESG experts, every board member should have an
understanding of sustainability basics.
An influential director needs to be able to enjoy nuanced discussions
and take intelligent decisions.
To achieve this, new directors with ESG expertise need to be
incorporated into the current board discourse, especially regarding
risk and strategy.
Rather than remaining constrained on an ESG committee, they
should be fully integrated into the board's functions, structures, and
decision-making processes so that their expertise and insights
become part of board discussions.
Boardroom survival guide
Companies should also conduct regular board education sessions on
material environmental, social, and governance issues so that directors
remain up-to-date on these subjects as they arise.
It is essential to link education and training programs with operational
or management realities. Site visits, for example, would allow directors
to gain a better understanding of the impact their activities can have
on the environment and their employees.
Climate and ESG training, available in various formats, is becoming
increasingly common, allowing directors to expand their expertise.
The World Economic Forum, for example, directs the Climate
Governance Initiative, an international network of chapters that
promote climate governance.
Engage with stakeholders and thought leaders

Environmental and social problems evolve rapidly.

Engaging external and internal stakeholders proactively allows

boards to monitor the ESG landscape and anticipate new priorities.
Board members should regularly engage these stakeholders.

An external advisory council can provide valuable insight when new

information surfaces and be the eyes and ears for the board.

These councils can also be an excellent place to find new board

members with sustainability experience.

Investors should also be involved in the discussion of sustainability

issues.

It is expected that boards communicate directly and systematically

with shareholders on critical issues.

Boardroom survival guide

Engage, discuss and prepare

Engaging internal experts is also critical. It's common for large

companies to have sustainability teams, but they aren't always visible to
the board.

Having regular presentations, either once or twice a year, will allow board
members to understand the company's ESG approach and give directors
the chance to ask questions.

By reducing risks, long-term value can also be created.

Managing the risks and opportunities their portfolios face due to climate
change is essential. Investors expect their company boards to embrace
the skills required for success in a low-carbon economy.

If companies do not comply, they may face investor outrage, and board
members could be voted out.

However, firms can be proactive and onboard qualified directors. They

can also educate the board to participate in meaningful dialogue and
employ internal and external stakeholders who can add proper ESG
insights.

Do you think your organisation is ready to build a climate-literate board

of directors? If not, why not?

Boardroom survival guide

 Thank you for reading.

info@thecorporategovernanceinstitute.com
www.thecorporategovernanceinstitute.com

Boardroom survival guide