TELESTO STRATEGY

Pressing ESG Questions for the Boardroom

FEBRUARY 2024 | SPECIAL REPORT

With so much happening at the national and international level, it’s important that corporate directors and officers cut to the most pressing questions and issues around ESG today. We’ve developed a set of questions across a range of scenarios that we believe will help expose critical vulnerabilities, better manage limited resources, and highlight growth opportunities for the business.

For many corporate leaders, the term ESG (Environmental, Social, Governance) has become political, overstretched, and confusing. Despite the flurry of activity and potential backlash, ESG management and company-wide reporting is on the rise. 99% of the S&P 500 report on ESG, with 452 aligning with the Sustainability Accounting Standards Board (SASB), 395 with the Taskforce for Climate-related Financial Disclosures (TCFD), and 346 with the Global Reporting Initiative (GRI).

As the responsible body for establishing company policy and overseeing how management implements that policy, the board has an outsized responsibility to get ESG right. Furthermore, it is up to the board to mitigate relevant ESG risks and to identify ESG opportunities that will impact a company’s ability to create long-term value.

With so much happening at the national and international level, it’s important that corporate directors and officers cut to the most pressing questions and issues around ESG today. We’ve developed a set of questions across a range of scenarios that we believe will help expose critical vulnerabilities, better manage limited resources, and highlight growth opportunities for the business.

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Considering ESG by board objective

Provide Oversight and Governance	Which national and international disclosure requirements and regulatory obligations is the company subject to? What is our readiness for upcoming legislation (e.g., SEC Climate disclosure ruling)? Does the company have a centralized ESG, Climate, and Sustainability oversight department or does each department work independently? Which department is responsible for creating and maintaining ESG, Climate, and Sustainability reporting? How do they build buy-in on key initiatives across the organization (e.g., from finance, operations, marketing, etc.)? What metrics will we use to measure our progress on ESG practices and targets? How will we manage the necessary enterprise data? Does our management team have appropriate acumen related to ESG, Climate, and Sustainability? If not, how we do address the gap? What is the best communication platform to use for the company’s ESG disclosures?
Mitigate Enterprise Risk	How does the company characterize and prioritize ESG risks (e.g., financial materiality, relevance, importance, reputation)? How have we integrated Climate Risk Management (e.g., physical and transition) into our enterprise risk management system? Does the ERM process include assessment and mitigation plans for all identified ESG-related risks? Do we have a dedicated ESG committee? Or do we have ESG represented across all committees? What mechanism(s) will be used to keep the board apprised of identified ESG risks? How can we better integrate and understand the connectivity between Cyber and ESG risks?
Engage Investors	Do we understand investors’ ESG, Climate, and Sustainability disclosure requirements in the US? Internationally? Are we proactively engaging with investors to better understand current and future ESG reporting and disclosure needs? Is the company’s disclosure of ESG metrics and assessments relating to what might typically be considered “material” information adequate for investors to make an informed investment decision? Are disclosures made in the right place and does that address various stakeholder preferences? Are disclosures consistent across various platforms and appropriate for different audiences for each? Is the messaging being incorporated into operational discussions, such as quarterly analyst calls?
Increase Returns for Shareholders	Have we fully explored the revenue-generating opportunities presented by ESG and Sustainability (e.g., new products, new services, new circular business models, access to new markets, improved access to capital)? How are competitors seizing these value-generating opportunities? What has been the impact of doing so? What, if any, play does the company have with the commercialization of carbon or biodiversity credits? How can we best engage with Product, Supply Chain, Operations, and Sales teams to identify more revenue-generating opportunities?
Ensure Long-Term Viability	Does the company have a clear, articulated vision on how the long-term strategic plan considers the risks and opportunities related to ESG? What areas is the company targeting for future Sustainability initiatives, and is there a strategy to address how the company will reach those long-term targets? How else can the board and its committees ensure that the company generates long-term value for shareholders and stakeholders? Is the company’s purpose aligned with the business strategy? Does the company’s ESG, Climate, and Sustainability messaging align with its strategy and purpose?

To-date, most boards have leaned heavily on the Audit Committee to steward ESG risk management and reporting. However, other companies have taken the “all of board” approach. To provide perspective from across the governance structure, we also offer questions for each committee.

Integrating ESG into board committee oversight

Audit Committee	Are the ESG disclosures (both qualitative and quantitative) investor grade? Which ESG frameworks and/or standards is the company using? What are the upcoming disclosure requirements that we need to start preparing for? Are there processes and controls in place to ensure ESG disclosures are accurate, comparable, and consistent? Should independent assurance be obtained to ensure ESG disclosures are reliable?
Compensation Committee	Are the ESG goals and milestones effectively integrated into executive compensation plans? How is management organized to execute the ESG strategy? Are the right people and processes in place? Does the company have a culture which embraces ESG efforts?
Nomination and Governance Committee	Is the company’s ESG story being effectively communicated to investors and other stakeholders? Does the board have the necessary expertise and skills to oversee ESG risks and opportunities? Does the board understand why ESG is important to investors and other stakeholders? Is the board appropriately educated on ESG?

Key takeaways for board members:

Companies that embed ESG, Climate, and Sustainability into their strategies are better positioned for success. They can spot growth potential in identifying and managing ESG issues
As companies tell their ESG, Climate, and Sustainability stories and integrate ESG into strategy, it’s important to think through the “how” of implementation
The issues related to ESG, Climate, and Sustainability vary widely by industry, maturity and scale. Therefore, solutions cannot be one-size-fits-all
Directors have a critical role to play in guiding management to allocate the appropriate resources and attention

Additional Telesto resources:
Find additional information on how to get started with ESG, Eight Corporate Sustainability Trends for Corporate Directors, and build topical familiarity with our ESG Glossary as well as Telesto’s ESG Maturity Model.

Pressing ESG Questions for the Boardroom

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Where the World is Going