Expect the intense focus on ESG to continue in 2024. How companies manage material climate and other ESG risks and how they address critical diversity, equity, and inclusion (DEI) issues is seen by investors, research and ratings firms, activists, employees, customers, and regulators as fundamental to the business and critical to long-term value creation.

The clamor for attention to climate change as a financial risk has become more urgent, driven by reports that the summer of 2023 was the hottest on record, with global temperatures expected to reach new highs over the next five years; the frequency and severity of floods, wildfires, rising sea levels, and droughts; growing concern about climate-related migration and displacement; and concern by many experts that the window for preventing more dire long-term consequences is rapidly closing.

Regulators and policy makers globally are placing greater demands on companies to act – and climate disclosures are a priority for many regulators (also see the next item on the board’s agenda: Keep abreast of management’s preparations for new climate and sustainability reporting requirements).

Similarly, many investors continue to view material ESG issues as important. As BlackRock Chairman Larry Fink wrote in his March 2023 Annual Chairman’s Letter to Investors: “Many of our clients also want access to data to ensure that material sustainability risk factors that could impact long-term asset returns are incorporated into their investment decisions.”

In this environment, several fundamental questions should be front and center in boardroom conversations about climate and ESG. 

  • Which ESG issues are material or of strategic significance to the company? The ESG issues of importance will vary by company and industry.
  • For some, it skews towards environmental, climate change, and emission of greenhouse gases. Others may emphasize DEI and wider social issues.
  • How is the company addressing these issues as long-term strategic issues and embedding them into core business activities (strategy, operations, risk management, incentives, and corporate culture) to drive long-term performance?
  • Is there a clear commitment with strong leadership from the top, and enterprise-wide buy-in?
  • In internal and external communications, does the company explain why ESG issues are materially or strategically important? Indeed, some companies are no longer using the term ‘ESG.’