The following is an excerpt from our Navigating and Looking Ahead in Times of Crisis: Questions for the (hybrid) Boardroom publication, which gives directors and corporate leaders valuable insight into key risk management considerations. Read the full publication.
The rapidly shifting economic and geopolitical climates have given rise to a number of ESG-related issues that boards and corporate directors must navigate in order to ensure immediate and long-term success for their organizations.
This article, while not meant to be exhaustive, is a sample of key ESG-related risk management considerations.
Climate Change and Energy Transition
The pandemic and most recently the war have accelerated the energy transition and exacerbated the urgent need to fight climate change, triggering increased stakeholder awareness and pressure on companies with respect to carbon footprint, energy transition and sustainability:
- Does our board have the required level of "climate competency"?
- Do we have the right skills and people to address the issues related to climate change? Should we appoint a "chief climate change officer"?
- Do we have a clear understanding of who our key stakeholders are and what they expect in terms of climate change strategies? For example, do we have any green funds as part of our shareholder base?
- How do we handle the disclosure requirements and related liability associated with climate change and sustainability? Are there any regulatory changes we should consider in order to facilitate the energy transition?
- What strategies can we implement to reduce our company's carbon footprint and transition to renewable energy sources? What are the financial implications? What are the potential risks and benefits?
- How can we engage our employees and stakeholders in the energy transition process? What kind of partnerships should we consider to ensure that our energy transition is successful? Should we select our suppliers based on their commitment to environmental sustainability?
- How can we best utilize data and technology to monitor and measure our progress on the energy transition?
Workplace and Employees
The pandemic and resulting lock-downs have had a significant impact on the workplace, particularly in the service industry, and have challenged our traditional organization of labour. Many organization are facing significant challenges as the economy has reopened and are struggling to find the right balance:
- How will employees rank a workplace in the future? Is there an
opportunity to create a more attractive work environment which
might give our organization a competitive advantage at attracting
and retaining talent? For example:
- Are we prepared to work remotely or in a hybrid way for an extended period of time? Should flexible or work from home arrangements be utilized more regularly across the business to support the organization's strategy?
- Does the organization have the right mix of full-time, part-time and casual employees and contractors, especially in light of changes to supply and value chains?
- What is our return to office policy? How are we encouraging our employees to be present in person? Is there an opportunity to be different from our competitors and create better engagement and employee-loyalty?
- Should reliance on external consultants or contractors be reduced and the required expertise be sourced or developed in-house?
- If and how should or must our workplace be reimagined? How do workplace ergonomics need to be changed? What are we doing to help our employees adapt?
- Evaluating investments in the adaptation of workplaces. How much should be invested and should it be for short-term modifications? Should the business be investing in long-term flexibility and adaptability of the workplace and how do you justify the cost or measure the return? What are the capital allocation implications to this?
- What impact is the hybrid model of remote and in person work having on our company's culture? Do we recognize the difference between the culture of the company that is present among top management compared to the other levels of the company?
Stakeholder Relations and License to Operate
In distrusting times, a business's capacity to strengthen and generate trust will ensure its social licence to operate:
- Do we have a good sense of how we are perceived by our stakeholders and whether our license to operate is robust or eroding?
- What are our shareholders focused on? Has their focus changed and does it align with our strategy and business plan? How are we communicating our ongoing commitment to the long-term viability of our organization and its potential to create sustained value?
- Are we prepared to face an accelerated focus on ESG and energy transition? Do we have adequate information, tools and procedures to "walk the talk"?
- Are we or our operations impacted by indigenous reconciliation? Do we have the right level of engagement and strategy to partner with First Nations in this rapidly shifting environment?
- Will our shareholders be supportive of our organization helping to 'share the burden' and support the wider community rather than focussing on pure corporate and shareholder profits?
- As we reimagine our appetite for risk, capital allocation, processes and supply chains, will our stakeholders support the potentially resulting new cost structures? How will we maintain competitiveness as we reshape our business?
- Are all key stakeholders, including regulators, adequately updated on any significant changes to our organization?
The COVID-19 pandemic and the war in Ukraine have thrust ESG-related issues into the spotlight for boards and corporate directors. Amid such a changing global business landscape and increased shareholder interest in geopolitical, environmental and social issues, it's critical for directors and leaders to have a robust strategy in place to proactively respond to these types of risks as they emerge.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
