By Dr Rachel Baird, Practice Director
ESG—or Environment, Social, and Governance—is a vexing three-letter acronym that continues to bedevil boardrooms and management. A lack of clear definitions and measurements around the world means that nuanced conversations about ESG are essential. One organisation’s “ESG aspirations and performance” will vary from another’s.
Over the past five years, case law indicates ESG has been used in the context of greenwashing, ESG criteria, green credentials, ESG risk, ESG alignment, ESG enterprise, ESG benefits, and ESG issues. In most cases, no context was provided to explain what the parties meant by its use. Similarly, diverse views are held among shareholders. Resolutions attributed to ESG from 2002-2019 reacted to climate change, gambling, corporate governance, human rights and workers’ rights.
Where does this leave boards and directors who feel they are prepared to respond to ESG risk and to drive ESG aspirations? They seem none the wiser and exposed to risks such as:
- Misalignment between boards, management and stakeholders over what ESG concepts are essential to the organisation.
- Negative stakeholder feedback and litigation.
- Increased regulatory scrutiny.
- Reputational and business value impact.
- Increased difficulty or inability to obtain finance.
- Employee dissatisfaction, including difficulty in attracting/retaining staff.
- A confused strategy confounding execution.
Steps directors can take
To manage the risk of uncertainty over what ESG means to the business, directors can take the following actions:
- Examine core activities to determine the extent of environmental, social and governance impact, opportunities and risk.
- Determine – informed by science, data, and internal knowledge – what is material to the organisation within the environmental and social impacts and risks.
- Ensure material ESG considerations are appropriately incorporated into the organisation’s strategic and business plans.
- Determine the priorities for the organisation in the short, medium, and long-term.
- Craft strategic goals around these priorities.
- Resource management to execute the strategy.
- Communicate the organisational priorities and goals to stakeholders.
- Measure progress and report.
ESG remains a complex challenge, and misalignment between boards and management can heighten risks. Without clear priorities, organisations face regulatory scrutiny, reputational damage, and operational setbacks. By defining material ESG risks, integrating them into strategy, and communicating effectively, boards can move beyond vague concepts to drive meaningful, long-term impact.
Dr Rachel Baird is skilled in ESG strategy and policy development to guide reporting outcomes. If you would like to speak about how Peakstone Global can help your organisation towards Better Board Performance, send an email or connect with Rachel on LinkedIn.