The world is a very different place than it was at the start of 2022, when COP26 was at the forefront and ESG at or near the top of corporate board priorities.
The invasion of Ukraine has transformed the outlook for the economy and organizations by creating volatility, whether through sanctions and loss of markets, increased energy prices and associated broader inflation to almost all products and services, and supply chain disruption.
Another factor contributing to disruption in the global supply chain is China’s zero COVID-19 policy. Their current approach to curbing it with strict lockdowns adds further uncertainty.
As boards prioritize their valuable time to negotiate this unstable new world, the question is, where does that leave ESG?
Should current ESG strategies be abandoned, or should boards continue to focus on them as before, or put even more emphasis on ESG in the future? Basically, should they rethink their ESG approach?
ESG remains a vital focus
These forward-thinking leaders and boards will recognize that despite the volatility, ESG remains a very important goal for their organization. A key aspect of ESG – concerns about the environmental impact of companies – does not go away.
Deloitte Global’s third annual readiness report, “The Fourth Industrial Revolution: At the intersection of preparedness and accountability,” reveals that not only is the environment on the minds of leaders, but that climate change and environmental sustainability have become an integral part of their management of their businesses.
In surveying more than 2,000 global leaders, Deloitte Global found that nearly 90% agreed to some degree that the impact of climate change will negatively affect their organization. The world is warming due to rising carbon emissions and almost everyone agrees that action is needed now if the increases are to be small. This means that those who continue to mitigate their impact on the environment at this time will be well received by stakeholders.
Boards need to realize that any increase in fossil fuel use due to the current volatility should be a very short-term policy, with their company having a clear roadmap to quickly reduce emissions in the medium and in the long term, if they are serious about ESG.
The growth of institutional investor activism will certainly help to keep the mindset of boards focused on ESG. For example, BlackRock states in its proxy voting guidelines that it will continue to pressure companies to disclose a net-zero aligned business plan consistent with their business model and industry.
In 2022, this will include asking companies to demonstrate that their plans are resilient as part of likely decarbonization pathways towards a global goal of limiting warming to 1.5°C.
New opportunities to grow your business
Dependence on Russian gas and oil, especially for many people in Europe, presents an opportunity for forward-thinking corporate boards to accelerate their efforts to use sustainable and renewable forms of energy. .
Organizations should also keep in mind that many governments in Europe are realizing that energy supply is now an increasingly important national security issue and will seek to accelerate moves towards renewable energy adoption. For example, Germany now plans to completely phase out coal eight years ahead of schedule – and get 80% of its electricity from renewables by 2030.
Amid this uncertainty, smart organizations will spot new opportunities to grow their business, with ESG in mind. It is those boards that are inclusive and benefit from the five diversity drivers – demographics, skills, experience, thinking styles and circles of influence – that will have an inherent competitive advantage in decision-making due to the makeup of their board. advice.
In addition to boards that have effective governance processes in place, including conducting regular assessments of directors to ensure they are fit for the future, who will be able to identify and seize these opportunities.
ESG planning by the board
When it comes to ESG planning by the board – which has three key areas – the best place to start is to effectively plan and assess risk. For example, the invasion of Ukraine highlights the risk of organizations doing business in autocratic states, and companies serious about ‘social’ in ESG should assess their business relationships in these territories and take appropriate measures, if necessary.
Second, boards must ensure that ESG disclosure and reporting is verifiable and accurate. Finally, directors must clearly understand that they are individually responsible if their activity harms the environment.
As the current volatility continues with the war in Ukraine, boards should consider how they might need to adapt their short-term ESG plans to ensure they don’t compromise their long-term ESG goals. .
The current energy crisis could accelerate the pace of change, with a reduction in the use of non-renewable carbon fuels and an increased focus on energy security. After all, boards have a responsibility to manage environmental capital and sustainability in a way that is honest, reflects expectations, and is good business.
Organizations that continue to prioritize ESG and spot an opportunity with ESG to grow their business during these uncertain times will experience happy stakeholders and increased revenue and help deliver a better future for us all.
About John Harte, Managing Partner at Integrity Governance
John Harte leads a global team at Integrity governance which aims to make advice more effective. A board expert working with multinationals, SMEs, trade associations and nonprofits, he provides practical, unbiased advice to directors, business owners, executives and CEOs to help improve performance. from the administration board. John and his team have advised the boards of organizations in the UK and around the world since he founded Integrity Governance over 17 years ago. He has 30 years of director-level experience in the corporate world, having worked at blue chip companies such as Mars, Schroders and Goldman Sachs. He is a sought-after speaker and thought leader on board effectiveness, practical governance and business disruption.