Making Better ESG decisions

Making Better ESG decisions

Hans-Kristian Bryn

35 years: Strategic risk management and governance

In this video, Hans-Kristian talks about the themes by exploring how ESG, an important risk as well as an important opportunity, can be incorporated into planning and decision-making in order to protect and enhance value. He also looks at some pragmatic guidance on how best to build on the efforts that have already been made, as well as the role that the Board can play in progressing and embedding ESG.

In this video, Hans-Kristian talks about the themes by exploring how ESG, an important risk as well as an important opportunity, can be incorporated into planning and decision-making in order to protect and enhance value. He also looks at some pragmatic guidance on how best to build on the efforts that have already been made, as well as the role that the Board can play in progressing and embedding ESG.

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Making Better ESG decisions

16 mins 31 secs

Key learning objectives:

  • Outline the themes of embedding ESG for strategic success

  • Understand how ESG can be incorporated into planning and decision-making

  • Identify the role Board can play in progressing and embedding ESG

Overview:

Most organisations will already be well underway with their ESG strategy by now. The discussion of next steps is more about taking stock of whether or not the current approach is meeting investor and stakeholder expectations. Equally, it can be informative to look at the approaches discussed in the video on risk-based decision-making.

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Summary

Stakeholders and ESG

Many organisations are currently struggling to link their ESG approach to strategy and business planning instead of compliance. This may be due to internal resistance to change, focus on "greenwashing" or an inability to innovate. A re-evaluation of the company's purpose as well as strategy is required in order to rectify this issue.

ESG barriers and enablers

Companies are naturally resistant to change and unless this is addressed, they are likely to be disrupted or even forgo the opportunity of using disruption for their own benefit. By using the disruption lens, we are, in effect, stress testing the purpose of the organisation and acknowledging that the previously articulated purpose might no longer be fit for the future.

Transitioning the ESG approach

Companies will be on a spectrum that ranges from existing businesses trying to react and adapt to new ESG expectations to those that have created ESG-centric operations. Over time, we would expect to see a higher proportion of cash flow and value accretion to come from 'new' ESG anchored businesses. It is likely that companies will take a portfolio approach when making the change.

What questions should be asked to make sure that an organisation stays honest in terms of how it addresses ESG?

1. Which of our businesses have the most significant ESG exposure?

2. How is this exposure perceived by stakeholders?

3. How could this business be disrupted by more ESG centric offerings?

4. How could we use ESG to disrupt the marketplace to generate value?

5. Are our business case processes designed to identify ESG risk but also to encourage innovative ESG-centric solutions?

6. Do our reward systems encourage a transition to more ESG-centric solutions?

Governance Implications

The Board not only approves the strategy but is also responsible for questioning management's definition and execution of it. The Board also sets executive rewards and monitors executive and corporate performance. They must challenge the implementation actions to ensure they are in line with risk appetite and that they support the delivery of ESG objectives and pledges. The Board needs to be supported by Audit and Risk Committee and Remuneration Committee with an aligned view on the risk, performance and reward that should support and signal the direction of travel. In order to achieve this, the Board will need to have set and approved its risk appetite and risk parameters. For many Boards, there is also a risk disclosure aspect to ESG.

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Hans-Kristian Bryn

Hans-Kristian Bryn

Hans-Kristian Bryn is a strategic risk and governance advisor with over 20 years of partner level advisory experience. He is currently a senior advisor to Boards and ExCo's listed on the FTSE 100 & FTSE 250 on risk management and governance related matters. Prior to private advisory, Hans was a partner at firms such as Oliver Wyman and PwC and worked across a wide range of sectors.

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