WATSON’s Jodi Butts presented at the McCarthy Tétrault Advance™: 12th Annual National Retail and Consumers Markets Summit, together with Awi Sinha, McCarthy Tétrault Co-Lead of Public Sector practice. During the session, they discussed environment, social and governance (“ESG”) as a governance and stakeholder imperative. This engaging discussion yielded many takeaways:
We are seeing a pivot in companies’ approach to ESG from a litigation-risk approach to an opportunity-seizing approach. In today’s economy, ESG is becoming an aspect of the product that consumers consider and value. The ‘marketizing’ of consumers opinions through social media and the flexibility of the digital marketplace play an important role in accelerating ESG awareness for businesses.
The ideal starting point is to align the company’s purpose with its ESG goals. Board members should be encouraged to bring ESG into their decision-making throughout every aspect of the board’s agenda. Especially in Canada, there are high expectations on directors, and directors’ fiduciary obligations require them to look beyond just shareholders and consider other stakeholders by evaluating material sustainability risks. These stakeholders such as investors, lenders and third-party organizations are increasingly focused on board sustainability competencies.
There is no one best practice in terms of how to structure your ESG approach. Some companies extend their audit committee’s mandate to include ESG or include the ESG mandate in their governance committee charter. Others choose to strike an E&S Committee or distribute ESG responsibilities across currently constituted board committees.
Whatever approach is taken, boards must seriously consider the committee’s competencies and skills to adequately perform their oversight duties. For example, the audit committee could be appropriate to oversee environmental emissions disclosures but not other aspects of ESG.
Consumer facing corporations see a symmetry between the goal of leaving the world a better place than how they found it, and the goal of surviving in the market. Some companies are waiting for regulations to take steps while others are proactively establishing initiatives. Even though not every company will lead the charge, capitalism is dependent on the execution of ESG goals. Consumers are looking for reasons to change brands, but they are also looking for reasons to remain loyal to any particular company. Focusing on ESG allows companies to enhance the loyalty and alliance between the company and the consumer.
Is your organization thinking about ESG but unsure where to start? Email us. WATSON is here to help.
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