3 Tips for Public Companies to Avoid Common ESG Mistakes and Liabilities
As SVP of underwriting for public commercial D&O at Argo Pro, I often underwrite the executive boards that sign off on environmental, social and governance (ESG) programs. Companies that don’t take their ESG efforts seriously or make claims they cannot support can expose themselves to liability.
Here are three ways you can build an ESG program that will make a positive impact, please shareholders and meet regulations.
1) Be authentic and actionable in your ESG initiatives
- Integrate ESG into your corporate governance. By integrating ESG principles into your organization with board-level support, you can help your whole team meet your commitments.
- Conduct a materiality assessment. An assessment allows you to evaluate and prioritize ESG issues and explain them to your stakeholders.
- Don’t promise ESG outcomes that you don’t plan to deliver. So-called “greenwashing” can tarnish your organization’s reputation and lead to claims against your company.
- Set clear, definable objectives. A detailed plan with specific performance measures will help you align your organization, measure your progress and ensure transparency.
2) Report your ESG measurements accurately
ESG reporting guidelines vary across industry and geography. The U.S. Securities and Exchange Commission is working on proposals to standardize regulations, ensure clarity and strengthen enforcement mechanisms like the Climate and ESG Task Force.
Publicly traded companies may soon be required to:
- Disclose climate-related risks, including the material impact of extreme weather and its impact on your business.
- Share a risk management plan that identifies, assesses and manages climate-related risks and integrates them into the overall risk management strategy.
- Provide details on the impact of climate-related events, including estimates and the assumption of physical and transition risks.
To be sure you are communicating transparently with your shareholders, consider setting up an ESG committee and keeping track of evolving reporting requirements.
As an example, Argo’s annual ESG report outlines and measures the company’s specific objectives, including reducing paper waste and minimizing electricity consumption. Our company’s Sustainability Working Group meets multiple times a year to address climate risks.
3) Understand climate change risks and opportunities
The cost of extreme weather driven by climate change reached $170 billion in 2021. Climate events will continue to affect the global economy of the future, creating challenges across industries. Investors want the companies they invest in to mitigate the damage.
You can make a positive impact on the future and reassure shareholders and other stakeholders by:
- Being aware of the risks.
- Setting clear objectives.
- Having a risk management strategy in place.
- Continually improving your ESG efforts.