The Goldilocks Effect: Which Board Committee Is “Just Right” for ESG Ownership at Your Firm?

Written By Steve Adams, Senior Director

November 17, 2021

A few weeks ago, we published an ESG board oversight article laying out the pros and cons of choosing different board committees for the job of ESG ownership. We concluded that the most important step is to put someone in charge, so you can move the ESG effort forward and meet stakeholder expectations. Plus, board ownership of ESG responsibilities is a highly weighted factor for ratings agencies and a dimension of TCFD and CDP reporting.

Still, it’s an important decision worthy of serious consideration. If your business continues to debate the matter, keep in mind that whatever decision you make now is not set in stone. In fact, you can and should change things up as your ESG program evolves. And, in many ways, it’s the maturity of the program that will drive you to the right answer for your business right now.

Base board oversight on the three degrees of ESG maturity for a “just right” solution.

Public companies run the gamut when it comes to ESG maturity. However, whether you’re just getting started, have a well-established program, or are somewhere in the middle, your investors want to know that your board is actively involved. And, when you choose the right committee for the current phase of your ESG journey, you’ll not only meet your stakeholders’ expectations; you’ll also put your ESG program in the best possible hands for the moment.

Here are our recommendations for choosing a committee based on your company’s current level of ESG activity:

  1. Level One: Crawl
    • If ESG is a new initiative, put your Nominating and Governance Committee in charge.
    • When ESG is a fledgling priority—i.e., it’s been on your organization’s radar for two years or less—then you’re likely still in the process of determining your ESG strategy, goals, and processes. You may not have a formalized Corporate Sustainability Report (CSR) just yet. And many critical decisions still need to be made.
    • Your Nominating and Governance Committee is an excellent choice for this initial phase of ESG. For one thing, the committee already exists. And the board members who staff it have experience in corporate governance, which is often the first area of ESG that organizations address. So, it’s a natural fit with less lift required to get things off the ground.
    • What’s more, letting these board members lead the charge and set the tone for now avoids the complications and gridlock of having too many cooks in the kitchen, which could happen if you were to assign multiple committees or get the full board involved. You will be able to quickly show progress in at least the “G” area of ESG while giving your organization the time it needs to establish its environmental and social priorities.
  2. Level Two: Walk
    • In the execution phase, multiple committees should be involved.
    • By the time your company has been working on ESG initiatives for two to five years, you usually have a published CSR aligned with at least one framework. You have set measurable goals in various areas of ESG and are in the process of working toward reaching them.
    • This is the “all-hands-on-deck” phase because there is a lot of work to be done and it takes a village to do it. With the broad scope of ESG, you will also want to bring your board’s full breadth of expertise and diverse perspectives to bear as you make your first significant headway. This is important because you might not have any dedicated ESG specialists yet. But you do have board members with strengths in various ESG-related areas. Leverage that knowledge by assigning responsibilities accordingly. For example, diversity can fall in the Compensation Committee’s court. Reporting goes to the Audit Committee. And the Risk Committee wins responsibility for the climate risk assessment work.
    • The more members of your board who are involved at this phase, the more accountable your leadership team will be to take action. Since this is the heavy-lifting period, sharing the work across the organization is key to making the big leaps you need to be making right now. It will also help you pinpoint areas where your company can outshine its peers. The board should strategically evaluate efforts and results along the way and decide if and how the business can become a marketplace leader in one or more areas of ESG.
  3. Level Three: Run
    • Make the transition to a dedicated ESG/Sustainability Committee.
    • Companies that have reached the “run” phase of their journey have been notably invested in ESG for five years or more and have made ESG one of their most significant corporate priorities. The CSR is usually aligned with several or all major frameworks and potentially integrated with the annual report by now. At this point, sustainability strategy is less about improving the business and outpacing competitors, and more about impacting the world in a meaningful way.
    • This level of ESG maturity commands a dedicated ESG or Sustainability Committee. Such a committee is usually not appropriate before this phase because it takes time to bring the right people on board and/or to cultivate the right skills without diluting other essential board-level capabilities.
    • Once companies have achieved this level of ESG expertise, however, the board committee’s role should skew heavily toward trailblazing. ESG/Sustainability Committee members have the experience to be thought leaders and to set the agenda with respect to the company’s obligation and ability to make a difference in key areas. They are not necessarily driving new action on sustainability. Rather, they are driving new innovation. Accomplishing this requires the dedication and focus of a specialized subgroup as opposed to the consolidated effort of the entire board.

In the right hands, your ESG progress will take off fast.

If you want or need to accelerate the ESG effort at your firm, then your board members are the right people for the job. When you tap into the right resources at the right time, you can and will make progress. This will not only satisfy your investors; it will raise your ESG scores and enable your company to make a meaningful difference in the process. Keep in mind we’re always here to help support your organization and your board committees in your ESG journey. To learn more, reach out today.

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