This week, I will be speaking at the seasoned director programme on the subject on sustainability, which has taken hold of how things are run globally, and no organisation can deny it.
It has evolved into a central issue that encompasses all of a company’s attempts to be a good steward, and it incorporates the three measurable and critical pillars of Environmental, Social, and Governance (ESG).
Today’s dynamic business atmosphere that is rapidly growing has made EGG a top matter of concern. An organisation can hardly be successful if it doesn’t incorporate an approach of ESG policies into its long-term plan.
Such approaches are usually facilitated by a board that appoints a director who singles out relevant ESG issues that affect a company’s business.
The exchange of views on the actual duties of a director revolving around ESG and climate regarding sustainability has resulted in heated debate among corporate governance practitioners.
The directors, therefore, have a role to play and keep up with the realm of sustainability. Consumers are no longer interested in just getting products, but are more concerned about how sustainable these products are.
They are willing to pay more for goods and services given by socially responsible businesses. Directors should make an effort to learn about current consumer trends.
Customers are increasingly seeking and selecting healthier, greener, and more socially responsible options as this is becoming the norm in a world that is drastically being hit by the effects of climate change.
Directors should be aware that investors are hesitant to invest in companies that do not have a long-term ESG strategy. A sustainable company plan aims to have a tremendous social and environmental impact.
Environmental degradation, inequality, and social injustice can arise when businesses refuse to take responsibility. Investors are hesitant to put their money on the line, and as a result, they are subjected to lawsuits and compensation claims from victims of the company’s unsustainable operations.
Having stakeholders and regulators around can guarantee that at one point you will be revealing information on outcomes, policies and risks of the organisation. This includes environmental matters, employee-associated aspects, appreciation of human rights, corruption, and bribery issues.
As a result, stakeholders will easily be able to identify any form of turbulence in the market trend and assess competitive risks.
Directors have to step in and come down in favour of outstanding stakeholders; the primary role is to supervise how the strategies and risk management practices address the needs of the investors, thus fueling shareholder values.
Moreover, they are tasked with ensuring effective encounters with investors by facilitating the identification and disclosure of ESG risks to shine light on how an organisation incorporates sustainability to change stakeholder prospects in risk and strategy.
Subsequently, stakeholders will be able to price the risk effectively as it will be apparent to them how the company is protecting value. Furthermore, transparent and consistent sustainable disclosure allows investors to efficiently perform their investment game plans, thereby promoting long-term value.
Directors also have to look into red lights that insinuate threats and violations to an organisation. Due to this, they must have the necessary information on climate, ESG-related risks and conveniences the organisation might encounter for them to dive deep into matters of climate variations.
Unattended red flags such as an emission regulations violation could go a long way in ruining a company’s reputation, putting its operations on the line. This could also damage the company’s brand, posing financial risks.
A poor reputation increases hiring and retention costs, lowering operational margins and preventing higher returns. Furthermore, a tarnished reputation increases the risk of liquidity, which impacts stock price and, as a result, market capitalisation.
Good business conduct is a critical mission. Organisations directors should focus on integrating positive environmental and human effects since both are strategic drivers of brand and business reputation.
In addition, directors have a role in decision-making regarding compensation matters to boost progress on corporate strategies and techniques that manage the risks associated with ESG matters. The economy is fleshed out and responds promptly to financial incentives.
Achievement of strategic company goals is thereby greatly dependent on executive compensation. This places directors in an eccentric position to connect corporate game plans and purpose with sustainability.
It also promotes the structuring of existing and new ESG programs that align with the strategy of expanding business opportunities and facilitating productive social and environmental activities among members of the society.
Directors and relevant company personnel should henceforth educate themselves on the critical ESG issues and be able to conduct business in a way that does not harm the environment, community, or society as a whole.