If ever you find yourself pondering just how substantially governance and the expectations of boards and governance professionals have evolved in recent years, just pull up a couple of board agendas from five and 10 years ago – or even three and five years ago. Then look at your 2019 work plan or planning calendar. If you have a Diligent portal, you can simplify the comparison by popping on to your computer, tablet or smartphone and entering search terms reflecting strategic matters that now appear on your agendas on a recurring basis.
You may be struck by just how many now-routine board business items weren't even on your organization's governance radar not that long ago. This applies not only to your board agendas, but also to how you, your directors and your senior executive colleagues have all had to elevate their levels of governance sophistication. That's a good thing.
Creating an ESG Performance Tracking Plan
While it may not yet be routine for everyone reading this, board oversight of environmental, social and corporate governance (ESG) practices is a timely example. When it comes to ESG, it's not only boards that are evolving. This acronym reflects both environmental and people issues. While your board will be responsible for ESG oversight and performance monitoring, it's senior management and internal leaders of Communications, HR, Facilities, Legal, Production and so on who will be called upon to deliver on their respective fronts.
Corporations and organizations themselves are adjusting to stakeholder and shareholder engagement and activism, whether such engagement is expressed primarily on social media or also in the form of shareholder meetings and proxy votes. Effective ESG performance can represent competitive advantages, but, depending on your organization and sector, ESG initiatives may be very recent additions to your organization's strategic plans.
If your board isn't already monitoring your organization's ESG commitments and performance, that day is likely not far off. When that day does arrive, ESG is likely to also find its place on your risk register or within your Enterprise Risk Management (ERM) plan. That's because ESG performance (or underperformance) can impact the organization's financial performance and reputation. That means it has the potential to bolster or undermine competitiveness when it comes to employee recruitment and retention.
Creating ESG Oversight
When considering ESG oversight, it's worth reading the findings of the 2018 PwC 2018 Annual Corporate Directors Survey. PwC conducted the survey in summer 2018 and released its report, The evolving boardroom: Signs of change, in October 2018. Collectively, the 714 directors of U.S. public companies who participated in the 2018 survey represented governance perspectives from more than 12 industries and a cross-section of companies, 76% of which reported annual revenues exceeding $1 billion.
PwC found that there is increased director support for companies' incorporation of social issues into their strategies. Despite this, 29% of the participating directors were of the view that shareholders pay too much attention when it comes to environmental/sustainability issues. The same percentage said shareholders are too focused on corporate social responsibility.
The impacts of shareholder activism and influence are not, however, to be underestimated. Take, for example, a December 2018 announcement by Anglo-Dutch company Royal Dutch Shell (RDSA).
The company announced that, subject to a shareholder vote in 2020, it will link executive remuneration to the corporation's success in meeting yet-to-be-established carbon emissions targets. The company had already tied a percentage of executive remuneration to reductions in the company's operational carbon emissions. The December 2018 announcement represented an additional degree of accountability, in the form of attention to Scope 3 (all indirect) emissions. It's anticipated that three- or five-year targets will be established annually, as of 2020. The announcement followed pressure from major investors, who are concerned about climate change as a systemic societal risk.
It's anticipated that such high-profile ESG investor influence will also impact other corporations, and not-for-profits (NFPs), and public sector organizations are also being impacted by stakeholder activism. Across sectors, it's reasonable to anticipate that directors' deliberations may continue to be impacted not only by announcements such as Shell's, but also by the ongoing rise of shareholder and stakeholder influence.
Using Board Portal Technology for ESG Performance Tracking
Recognizing this, boards logically need tools that support effective oversight and routine monitoring and assessment of ESG performance and risks. Do you have resources that support such oversight?
Diligent Corporation commissioned Forrester Consulting to conduct an April 2018 survey of directors and governance professionals in 11 countries across Asia Pacific, Europe and North America. The study, conducted in June and July 2018, was designed to evaluate the technology used for board governance. Participants responded to questions about not only board management software and board practices, but also specifically about ESG performance. Forrester released its findings in the October 2018 report, Directors' Digital Divide: Boardroom Practices Aren't Keeping Pace With Technology.
Forrester found that boards across the regions involved in its study recognize the linkage between ESG performance tracking and financial performance. In North America, 79% of boards identified ESG performance tracking as important for both talent acquisition and long-term financial performance. Those percentages climbed to 82% among European survey participants and 90% of Asia Pacific boards participating in Forrester's study.
Despite this, Forrester reported that boards across all regions and sectors are finding little satisfaction when it comes to visibility into sustainability matters and their organizations' ESG progress. Boards associated with government entities and non-profit organizations reported lower satisfaction levels than did those overseeing public and private companies.
Technology can provide solutions, and Forrester found that 28% of those engaged in its survey said that having technology that provides insight into meeting ESG goals would be most impactful to their board. Forrester noted that technology can support benchmarking and even real-time tracking of ESG undertakings.
The same Forrester study found that, while adoption of board portals is on the rise, boards as a whole are turning to technology to solve less than a third of their governance responsibilities.
If that's the case with your board, it's worth exploring how your board and organization can benefit from investing in a portal. Enterprise governance management (EGM) is a relatively new term, used to describe the application of technical tools and resources to address governance needs.
Through Diligent's Governance Cloud, you can provide your board and your senior executives with secure and remote access to portal technology that supports strong governance. When it comes to ESG, you need to educate yourself and the board, and can securely store informational resources and monitoring reports in the portal.
Whether it's an individual committee or the board as a whole that undertakes routine reviews of ESG commitments, risks and performance, your directors and senior executives benefit from having remote, secure access to reports and both internal and external communications. You can securely message one another, individually or in specific groups, to provide information and attachments with Diligent Messenger – which affords both integrated and stand-alone messaging.
Enterprise, social and corporate governance (ESG) is an emergent issue, and not all directors or boards are in accord in their views. However, it does now reside alongside a series of other responsibilities associated with governance, all of which can be effectively supported with Enterprise Governance Management (EGM) and portal technology.