Kosmas Papadopoulos is Senior Director at the Corporate Governance & Activism practice and Rodolfo Araujo is Senior Managing Director and Head of the Corporate Governance & Activism Practice at FTI Consulting. This post is based on an article published in Drilling Contractor Magazine. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); and Socially Responsible Firms by Alan Ferrell, Hao Liang, and Luc Renneboog (discussed on the Forum here).
These poor practices can result in superficial approaches to risk management, leading to missed opportunities as companies seek to adopt robust ESG strategy
A growing number of companies are recognizing the opportunity for long-term success that results from an effective environmental, social and governance (ESG) strategy. Rising expectations from stakeholders, including investors, customers, employees and communities, indicate that high ESG performance may translate to better access to capital, talent and business opportunities.
While companies are eager to improve their ESG position, some find it difficult to create a plan of action. The term “ESG” may appear somewhat nebulous, and it is sometimes interchanged with other similar, yet varied, terms like sustainability and corporate social responsibility. Further, ESG issues cover a wide variety of topics, making it challenging for companies to understand and prioritize key issues. Some companies are not able to take decisive action and may try to address ESG issues through incremental steps, which leaves them lagging behind their peers. Other companies may fail to see results or recognition despite significant efforts.
To successfully navigate the complex and evolving ESG landscape, companies must avoid approaches that may lead to missed opportunities. This post discusses a few such misguided approaches, the seven sins of ESG management. These are common mistakes companies make when attempting to deal with ESG issues. At best, they can result in failure to receive credit for their efforts and, at worst, can leave the company exposed to significant risks.