December 10, 2019
December 10, 2019
A slew of headlines from the past year identify a critical business reality: Environmental, social, and governance (ESG) risks have financial consequences.
PG&E Corp.’s bankruptcy earlier this year, for example, was dubbed “the first climate-change bankruptcy” by The Wall Street Journal. In 2018, for the first time ever, more CEOs in the United States were fired because of “ethical lapses” than over financial concerns. And in 2017 alone, up to $941 billion of revenue from global public companies still depended on commodities linked to deforestation.
What does all this mean? First, ESG issues are increasingly having a material impact on the corporate balance sheet. Second, there is no longer any place to hide: In the current era of increased shareholder and stakeholder attention to these issues, companies and their boards will face the consequences of unaddressed ESG risks, some of which can materialize quite suddenly.
Given this new reality, boards have a choice. They can react to ESG crises as they arise, or they can work proactively with management to keep companies resilient in the face of these risks.
Ceres’ newest report, “Running the Risk: How Corporate Boards Can Oversee Environmental, Social and Governance Issues,” provides boards with a roadmap to transition from a reactive to a proactive approach to ESG risks. Built from interviews with over two dozen corporate directors, “Running the Risk” provides boards with actionable recommendations, leading practices, and questions to ask management.
As the report highlights, directors need to focus on three core areas when integrating ESG issues into their risk oversight role:
Risks are risks, whether they arise from climate change or currency fluctuations. Boards that take proactive steps to identify, assess, and adapt will create resilient, long-term value for their shareholders and stakeholders, and they won’t run the risk of being caught well behind the starting line in a crisis.
Veena Ramani is the senior program director of the capital market systems program and Hannah Saltman is the manager of the governance program at Ceres, a sustainability nonprofit organization working with the most influential investors and companies to build leadership and drive solutions throughout the economy.