How boards can help integrate ESG criteria into business performance

Boards of directors can help their companies incorporate environmental, social and governance (ESG) elements into overall strategy by defining short- and long-term objectives and by overseeing how business functions operationalize those priorities.

Anthony DeCandido, RSM partner and co-leader of the firm’s sustainability service solutions practice, recently sat down with Corporate Board Member to discuss the board’s role in integrating ESG criteria into business performance. Below is a transcript of the discussion; the conversation has been edited for clarity and length.

Q (Corporate Board Member): We’ve heard a lot about how important ESG is for companies to include in their strategic plans, but why should technology also be part of that conversation? Is that for compliance or decision usefulness—or maybe a little bit of both?

A (DeCandido): I think most often when companies engage us, they do so because there is some triggering event that has occurred. There could be a scenario in which they’re contemplating an IPO (initial public offering). It could be because there’s a key stakeholder concern as to the need to do this sort of thing. There could be a growing interest around compliance to ensure the completeness and accuracy of information that’s being used. 

Whatever the reason might be, we often instruct companies that, in our view, the best thing to do is to ensure that the information is decision-useful, meaning boards and executives can use this information to make better and more informed decisions while simultaneously fitting the bill for whatever stakeholder concerns they’re addressing or any possible looming regulatory requirements. 

Q: Let’s dig a little bit deeper there. How can technology help measure a company’s ESG efforts? How do companies prioritize what needs to be done in the short term versus what is more of a long-term initiative?

A: The value for companies today is around benchmarking and data analysis. If you have the ability to ascertain how the company is performing in any dimension of ESG on a real-time basis, that’s very value-creative for the business. 

Often, companies want to determine how they fared in a particular sector compared to direct competitors or industry leaders—understanding that every sector has its own KPIs (key performance indicators), targets or accounting metrics that they might evaluate. But when we see ESG truly ingrained into the overall organizational strategy, it’s usually because they blend evaluating how they’re faring organizationally with being more aspirational about the things they could do to improve decision-making within the business. 

Q: The board has an oversight role here; they’re not actually owning the implementation of this. Who is? Where do you see the responsibility lying with clients, or where would you recommend it lie, given how much data and internal information is needed? Is it finance, human resources, compliance, legal? A combination of those? What’s the best practice?

A: It will all depend upon the level of infrastructure that a business has around its sustainability strategy. There are groups we work with that have a very heavy focus on sustainability, and they might have four or five people focused on the initiative. In those cases, obviously the oversight is going to come from that department.

But more often in the middle market, there are professionals wearing a lot of different hats—it could be finance, human resources, IT (information technology) or general operations. In our experience, what matters more than anything is that the person who’s truly leading ESG strategy has cross-functional purview over the business.  Said another way, that would include the talents of someone who’s not just an IT person or HR person, but instead someone who is interwoven into overall organizational strategy. 

Q: So, regardless of who in the management teams owns this, what would you say are the most important questions that the board should be asking that person or set of people to make sure they are holding management accountable and that they really have a grasp on the most critical ESG-related issues?

A: One of the most common interests of any board-level person or executive is to ensure that there is some immediate quick win or return on investment that could be demonstrated because all these projects require an allocation of people resources and, in most cases, an allocation of financial resources. 

Any astute board member or executive wants to ensure there’s some form of ROI, and that comes in a lot of different forms. It could come in the form of increased markets for services or products. It could be better cost containment or more effective risk management. There are more progressive businesses that are looking at federal and state credits and incentives. 

Some of these things are immediate, and some are more long-term. Boards and executives should really be focused on what objectives are being set and how do we hold our people accountable to attain those, understanding that not everything is going to be immediate. But there should be some form of project plan that you can track and hold your people accountable to.