ESG is a very disputed subject, especially in countries as Romania, where is place for more measures to be taken.
The duties of the board of a company remained unchanged, but there is an expectation of investors, authorities and other stakeholders for boards to play an oversight role in ESG matters. The board is responsible for shaping the culture of the company and its purpose, for reviewing disclosures (including ESG disclosures) and monitoring the process for identifying risk and opportunities.
Major institutional investors and proxy advisors considers the board accountable for ESG matters. There are institutional investors with very strict voting guidelines that vote against the board if observes that the performance is not related to any ESG item.
For a better coverage of ESG matters at the level of the board there are several aspects that may be considered by boards:
1. Company specific ESG competency:
For an effective board oversight the board is expected to understand and oversee material ESG risks and opportunities of the company, as well as the ESG expectation of the stakeholders of the company (shareholders, authorities, business partners, employees). Board is accountable for ESG disclosure framework and needs to have an active role in reviewing the reporting framework.
2. Established ESG oversight framework:
The board may decide to establish a new committee or to add ESG oversight to an existing one and to pay attention to company’s operations, business strategy and business climate.
3. Periodic management engagement:
The board should work with management and understand how key data are collected, verified and reported, how vulnerabilities are identified and how potential solutions found.
4. Diversity and human capital:
As important matters in Social and Governance aspects of ESG, diversity and human capital is more and more discussed. The gender gap in management roles is still important and there is still room for improvement. The global trend of specialists leaving jobs (the big departure) affects many companies and human capital starts to be a risk to be considered.
5. Aligning compensation to ESG performance:
Currently companies have developed sophisticated remuneration policies. The direction of change goes to include ESG metrics in incentive plans, even it is difficult to set metric scores for Social and Governance matters.
In 2022 Bucharest Stock Exchange issued the first ESG Reporting Guidelines in partnership with European Bank for Reconstruction and Development and with Steward Redqueen. The Guidelines are published on the website of Bucharest Stock Exchange (https://www.bvb.ro/info/Rapoarte/Ghiduri/ESG_Reporting_Guidelines.pdf) and offer a great support for Bucharest Stock Exchange issuers.
Even prepared for Romanian capital market, the guide may be helpful also for boards of companies listed on other stock exchanges.