"Running the Risk: How Corporate Boards Can Oversee Environmental, Social and Governance (ESG) Issues" from Ceres explains why and suggests how material ESG risks should be incorporated into the board's risk oversight role. Each of these components of board oversight is supported by a series of practical recommendations and company examples:
- ESG Risk Identification: Boards should ensure that management consults a range of sources to identify ESG factors that could affect corporate performance and value, and integrate identified ESG risks into the company’s ERM process.
- ESG risk assessment: If ESG risks are identified, boards should ensure that management appropriately assesses and prioritizes material risks for board focus.
- ESG-related decision-making: Boards can take a number of steps to mitigate the potential material impact of ESG risks identified, including adapting business strategy and holding executives accountable for performance against these risks.
- Structuring board oversight: Boards can structure themselves in ways that make sense for them and that allow the most effective and systematic ESG oversight. See the company examples on page 24.
- ESG risk oversight disclosure: The report suggests companies disclose this board risk oversight information, which it characterizes as "decision-useful":
- The full board’s role in ESG risk oversight
- How the board oversees ESG key risks, including board structure and board expertise where appropriate
- How the board receives training on key ESG risks, including the topic and leaders of the training
- The board’s approach to allocating ESG risk oversight
- The nature and frequency of reporting to the board on ESG risks, e.g., who from management presents, which committees receive reports, and whether the entire board receives reports
- How ESG risk discussions are integrated within other management discussions on strategy, business unit performance or other strategic and tactical functions
The report - which is based on review of relevant literature, as well as interviews with 27 corporate directors and issue experts across the technology, mining, retail, financial institutions, real estate, and food and beverage sectors - also observes that companies are already required to disclose material risks in their SEC filings, but suggests how this disclosure can be enhanced to meet investor expectations. See also the Executive Summary and Ceres' release, and additional information & resources on our Sustainability/ESG page. This post first appeared in the weekly Society Alert!