ESG board governance standard practices: Committee frameworks

As environmental, social, and governance (ESG) considerations continue to shape corporate strategies worldwide, a critical aspect of an ESG framework is the creation of specialized committees dedicated to overseeing key areas related to sustainability, ethics, and stakeholder engagement.

For some companies, it may be more effective to delegate oversight of ESG issues to new or existing committees particularly when the following is true:

• ESG strategy development is a new focus area.
• ESG efforts require significant undertaking.
• Expertise resides or was developed at the committee level.

This approach could help integrate ESG considerations into business functions, particularly when those issues aren’t directly linked to short-term reputational, financial, or risk considerations.

ESG board committee framework

There are several variables that influence a board’s committee framework. These can include company size, size of the board, industry, regulatory requirements, stakeholder expectations, organizational strategy, and historical precedent. When establishing an ESG framework, here are some committees that are most often involved:

• Sustainability and ESG
• Governance and nominating
• Investments
• Audits
• Compensation

Sustainability and ESG committees

A new standalone committee to oversee sustainability or ESG-related matters is a good starting point for any board. In fact, 54% of FTSE 100 companies now have an ESG committee at the board level.

This committee provides a forum for regular, in-depth discussion of ESG issues. However, in this framework, the committee is at risk separating the discussion of ESG from the broader business, finance, and strategy discussions.

To mitigate that risk, a standalone sustainability or ESG committee can be structured to include chairs or other representatives of the audit, compensation, nominating and governance, risk, regulatory, or other board committees involved with specific ESG issues.