Board Governance

Governance
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Frameworks and Standards
May 3, 2023

The role of the board of directors in relation to sustainability is becoming increasingly important as businesses recognize the need to integrate environmental, social, and governance (ESG) factors into their strategies and operations. Here are a few key aspects of the board's involvement in sustainability:

  1. Setting the sustainability agenda: The board plays a crucial role in setting the overall strategic direction of the company, including its sustainability goals and commitments. They establish policies and provide guidance to management on integrating sustainability into the company's core business strategy.
  2. Oversight and risk management: The board is responsible for overseeing the company's sustainability performance and ensuring that appropriate risk management processes are in place. This includes monitoring and assessing ESG risks and opportunities, ensuring compliance with relevant regulations and standards, and reviewing sustainability reports and disclosures.
  3. Integration into decision-making: Boards need to ensure that sustainability considerations are integrated into the company's decision-making processes. This involves assessing the potential impact of business decisions on environmental and social aspects, considering stakeholder perspectives, and weighing long-term sustainability risks and benefits alongside short-term financial considerations.
  4. Talent and executive compensation: The board is responsible for hiring and evaluating senior executives, including the CEO, and establishing their compensation packages. Linking executive compensation to sustainability performance indicators can incentivize sustainable practices and align the interests of management with the long-term sustainability goals of the company.
  5. Stakeholder engagement: Boards should actively engage with stakeholders, including shareholders, employees, customers, and communities, on sustainability issues. This can involve transparent communication, soliciting feedback, and considering diverse perspectives to ensure that the company's sustainability efforts address stakeholder expectations and concerns.
  6. Reporting and disclosure: Boards have a role in overseeing the company's sustainability reporting and disclosure practices. They should ensure that accurate and relevant information is provided to stakeholders, including ESG metrics, targets, and progress towards sustainability goals. Transparency in reporting is vital for building trust and demonstrating the company's commitment to sustainability.

Overall, the board of directors plays a critical role in guiding and overseeing a company's sustainability efforts, embedding sustainability into its strategic decision-making processes, and ensuring long-term value creation for all stakeholders.

The Board’s Role in Sustainable Leadership

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Frameworks and Standards

European Sustainability Reporting Standards

The ESRS standards are reporting standards for sustainability within the EU. The ESRS standards are an integral part of the CSRD, the Corporate Sustainability Reporting Directive of the European Parliament and the Council. This means that the ESRS reporting standards are mandatory. The adoption of the first set of 12 standards by the Commission is considered a significant step to promote sustainable practices and transparency in companies and to contribute to their comparability. This is because the new reporting requirements herald major changes in sustainability reporting and these will affect around 50,000 companies based in the EU. However, subsidiaries, branches abroad and companies that carry out a large part of their business activities in the EU area may also be indirectly affected, which is why the scope of impact can be significantly broader.
Frameworks and Standards

European Financial Reporting Advisory Group (EFRAG)

EFRAG (European Financial Reporting Advisory Group) is an independent, non-profit organization that provides advice and support to the European Union (EU) on financial reporting and accounting matters.
Frameworks and Standards

Standards

Set of criteria used by investors and other stakeholders to evaluate a company's sustainability and social responsibility practices.
Frameworks and Standards

Frameworks

A framework is a set of guidelines, principles, or best practices that provide a general structure or approach for achieving a specific goal or objective.
Frameworks and Standards

GRI

GRI (Global Reporting Initiative) is the independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts.
Frameworks and Standards

Integrated Reporting Framework

The Integrated Reporting Framework defines integrated reporting as ‘a process founded on integrated thinking that results in a periodic integrated report by an organisation about value creation over time and related communications regarding aspects of value creation.’