[author: Javier Gutierrez]
It’s hard to think of a trendier buzzword than Environment, Social and Governance (ESG) right now.
There’s nothing really “new” about it, it just changed. What used to be called corporate social responsibility then morphed into sustainability and has now evolved into ESG. There is, however, a new perception on the subject that makes ESG transparency a key objective for policymakers, boards and regulators.
What does ESG mean for companies?
Environmental (E), Social (S) and Governance (G) refers to the three central pillars in measuring a company’s sustainability and societal impact.
More information about how companies manage the environmental and social impact their business has on the wider community and how they work towards a more sustainable future are questions that businesses of all shapes and sizes all sizes should fit.
Once upon a time, CEO and board members paid close attention to quantifiable KPIs such as revenue, profit percentage, EPS, market share, share price growth actions, among others. Today, ESG has been added to the mix.
For the foreseeable future, how organizations manage ESG risks will have a direct impact on their financial credit ratings, among other aspects of their business. Good governance is an integral part of every ESG strategy, and it will be up to management to drive these objectives, implement good practices and ensure transparency. In most cases, a robust governance framework is still supported by a strong internal system of controls and policies that guide effective business decisions.
Having the right team guided by the right decision makers is key to achieving optimal results. So where does accountability lie within an organization?
According to a recent Nasdaq articlefor many companies seeking to comply with ESG requirements, it will be difficult to put ESG programs in place, as they have in fact never deployed initiatives of this nature before.
Some heads of departments such as risk, finance, audit and sustainability could take the lead in ESG. However, there are two specific titles within an organization that are ultimately better suited to the task: General Counsels and Chief Ethics & Compliance Officers. Both of these roles must possess the knowledge of the legal and regulatory requirements needed to assess risk and ensure collaboration across departments to properly manage ESG.
It is important to note that companies do not come in a standardized form. Organizations often have different team sizes, roles and responsibilities. Of course, if your organization is able to have a dedicated ESG function, that’s the way to go. However, if not, assign responsibility to one of your existing departments (risk, finance, audit). Ownership is crucial.
The key to remember here is that it doesn’t matter which approach you take or who you ultimately assign responsibility to; a leadership role must be placed, an ESG program must exist within the organization, and there must be a collaborative effort that encompasses the entire organization.
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