The role of the corporation in society is an abstract, politically polarising question that is not high on the priority list of most boards.
Yet, embedded in this question are strategic and operational issues critical to long-term value creation. And these issues are attracting heightened attention from investors, consumers, and other stakeholders.
From our perspective, many of these issues fall under the broad rubric of environmental, social and governance (ESG), from climate change impacts and worker safety to workplace diversity, executive compensation, and board composition. Given the significant opportunities and risks associated with ESG, companies that excel at identifying and incorporating these issues into their strategy enjoy a competitive advantage in the marketplace and among institutional investors. It is increasingly clear that ESG and Return On Investment are connected.
To help boards understand and shape the total impact of the company’s strategy and operations externally - on the environment, the company’s consumers and employees, the communities in which it operates, and other stakeholders and internally, on the company’s performance, we offer a five-part framework:
Our framework for board oversight of ESG as a strategic issue recognises that creating long-term value increasingly requires companies to understand the impact of their strategies on key stakeholders - investors, employees, customers, communities - as well as on the natural resources and supply chains that the company relies on. Total Impact Strategy encourages companies and boards to widen their aperture for a fuller view of ESG, strategy, and long- term performance.
Wherever the company is on the ESG journey, the oversight framework can help to drive a robust conversation about what ESG risks and opportunities may impact the company’s key stakeholders, corporate strategy, and long-term performance and how they will be addressed.
Companies that identify and incorporate these issues into their strategy will clearly stand apart - to investors, customers, employees, and the communities in which they operate - as forward-thinking organisations, focused on long-term performance and value creation.
Ensure that the board has the right composition, structure, and processes to oversee ESG in the context of strategy and long-term value creation. For additional information on the framework, click here.