A Company’s position on climate change, Diversity Equality and Inclusion (DEI) issues, and other Environmental, Social and Governance (ESG) risks is now viewed – by investors, research and ratings firms, activists, employees, customers, and regulators – as fundamental to business and critical to long-term sustainability and value creation. Especially when facing a cost of living crisis and an array of factors slowing down economic growth, oversight of these risks and opportunities will be a significant challenge, involving the full board and potentially multiple board committees. Now is the time for boards to ‘hold their nerve’ in doing what is right and sustainable over the long-term. Environmental, Social and Governance are the key metrics used to measure Sustainability while Sustainability in itself is the responsible and efficient utilisation of resources that does not hamper with the availability of said resources for future generations. In this thought leadership, both ESG and Sustainability will be used interchangeably.
Research by Mattison Public Relations shows that ESG committees are becoming an increasingly common presence on FTSE 100 boards, with 54% of FTSE 100 companies now having some form of ESG committee – whether that be described as an ESG committee, a corporate responsibility committee, responsible business committee, sustainability committee or environments and communities committee.
However, in Nigeria, most boards do not yet have a dedicated ESG committee; they are beginning to delegate ESG oversight in whole or in parts to various committees.
While committees responsible for ESG will have elements of ESG in their specific terms of reference, drawing on insights from our interactions with directors and business leaders, we highlight eight issues for the board and any committee focused on ESG to keep in mind as they provide oversight on ESG matters.
Clarity of purpose
Oversight of ESG risks and opportunities is a significant challenge, involving the full board and potentially multiple board committees. For example, elements of climate and diversity, equality and inclusion (DEI) oversight likely reside with the audit, risk management, human resources and other relevant committees – as well as the ESG committee, where they exist.
Consideration needs to be given to the coordination between committees as well as the information flows to the committees from the corporate functions (risk, internal audit, operations, legal, etc.) and from the committees to the board itself. For example, climate change might initially appear to reside with an ESGresponsible committee, but it will also likely touch the audit committee (data, the systems that produce that data, and the disclosures within the annual report), the remuneration committee (management incentives), and the nomination committee (the skills and experience of board members and senior management). Overlap is to be expected, but this puts a premium on information sharing, communication, and coordination between the committees. It also requires that committees have the expertise to oversee the issues delegated to them.
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Etihad Airways, the national airline of the United Arab Emirates, has raised US$1.2 billion in the first sustainability-linked loan (SLL) tied to environmental, social and governance (ESG) targets in global aviation.The transaction is the largest sustainable financing in the airline’s history and follows two innovative aviation financing deals – a first-of-a-kind sustainability-linked transition sukuk in 2020 and a loan tied to the UN Sustainable Development Goals in 2019.
Invesco Mutual Fund has announced the launch of its new fund Invesco India ESG Equity Fund 2021, an open-ended equity scheme investing in companies following the Environmental, Social, and Governance (ESG) theme.The NFO Opens on 26th February 2021 and Closes on 12th March 2021.
