ESG at the Heart of Governance

Last month FSL attended the Chartered Governance Institute’s (CGI) ESG Summit 2022.  The focus of the day was on how to steer ESG changes within the boardroom and understanding the changing regulatory needs.  The event was well attended and included speakers from the FCA, PwC, FRC, MSCI, HSBC and Goldman Sachs.

A recent FTSE 350 Boardroom Bellwether survey gathered the views of company secretaries on how boards are responding to the challenges of the economy, market conditions and the wider business and governance environment.  In the context of ESG, the results show that “awareness of climate change issues has grown considerably since December 2019, with 96% of companies having discussed climate change at least once in the last year. The majority of survey respondents have also published plans to tackle climate change, with plans covering a range of time spans.  In addition, 57% of companies had published an ambition to be net zero at the time the survey was taken”.  David Mortimer of the CGI told attendees that the latest research highlighted that the global population did not think that their governments are doing enough to deal with climate change and environmental risks.  However they thought that businesses, Non-Governmental Organisations (NGOs) and investors/shareholders are in a position to take actions and drive change.  The ‘Say on Climate’ campaign is a way for shareholders to have their say on a company’s plan for climate at AGMs and is similar to ‘Say on Pay’, which has been around for many years.  This is quite a controversial approach as many think the climate plan should be based solely on the board’s agenda.

These views were backed by the FCA’s Director of ESG, Sacha Sadan, who said “Climate is not going to be fixed by one person in your business… it needs to be embedded within all members of your organisation”.  He spoke further about the recently launched International Sustainability Standards Board (ISSB) accounting metric system for sustainability.  This is hoped to be a standardised report for all to consistently follow that takes into account reporting factors from the Task Force on Climate-Related Financial Disclosures (TCFD) and those from the Sustainable Accounting Standards Board (SASB).  ESG pressure on listed companies is coming from investors and regulators, but there is also pressure on limited companies from their employees, supply chains and consumers.

The Summit continued with panel debates on steering ESG changes in the boardroom and the impact of TCFD.  Recent research conducted by the OCEG and Diligent reported that 58% of respondents had minimal confidence in their company’s ESG capabilities and that this could have a big impact on their consumers, employees and brand.  On a more positive note, since the pandemic, the agenda for boards has changed substantially to include more ‘S’ topics as part of ESG discussions, not just ‘E’ issues such as climate change.  The additional issues include topics such as mental health, menopause and transgender.

The event concluded with sessions on ESG ratings, greenwashing and stakeholder engagement.  Overall an interesting day that provided a different angle to ESG and increased awareness, for many attending, of the need for boards to embed ESG policy within their wider business strategy.