Panel Discussion 2 – What is Keeping You Up at Night? ESG Crises & Priorities

The second panel of the forum discussed ESG crises and priorities for directors and investors.

The panellists began by discussing what they considered to be the most important ESG issues today. Two areas stood out – governance and climate change.

Investors and directors need to have a clear dialogue on what investment risks might materialize and how a company is managing these potential risks.  Investors need to understand what will materially impact a business, and then how company objectives such as a decarbonisation strategy can be improved to satisfy all parties’ risk appetite.

When a major ESG crisis occurs, the panel agreed that transparency and communication were vital. There can be a mad rush to get all the answers immediately, however transparency may simply not be possible immediately following a crisis.

This is where communication needs to make up for the lack of transparency, when full disclosure surrounding the crisis may not be possible.  Investors still want to know that someone or some part of the company is taking accountability for the crisis, and that both the response and preventative measures are being worked on.

Investors want to understand how they got to a point where an ESG crisis occurred, how it is being managed, and what timeframes are required to resolve the crisis.

The panel opined that when it comes to safety incidents, complacency plays a major role in the lead up to a crisis.  However, continuous changes in disclosures requirements are keeping boards on their toes.

When a mistake is made which leads to a crisis, there is a very low probability that the board is not accountable to some degree.  The panel observed that annual elections for boards, and attempting to avoid over-boarding are ways to ensure boards are held accountable. Currently there are few ways to hold a board member who is not up for election accountable. One possibility discussed would be a vote against the chair of the sustainability committee.

Discussing the issue of how to respond when engagement with the board is failing, the panel outlined that lobbying is more viable for a sustainable investment fund than for a fund without a sustainability focus.  The question for funds is always what investment risk is associated with the ESG risks they may be engaging on, and often capital will simply be withdrawn and allocated elsewhere rather than continue engaging with a company.

The panel concluded with a discussion on greenwashing. Companies need to be mindful of what was promised and how it is being tracked to ensure that they are going to fulfil their commitments. There are now real consequences for greenwashing claims if companies slip up and fail to meet targets. This can deter companies from setting targets in the first place.

© Guerdon Associates 2024
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