A FTSE250 General Counsel & Company Secretary writes...
“Has anyone established a separate ESG Board Committee and prepared Terms of Reference for the Committee? Any examples or “sources of inspiration” would be appreciated as we are considering this.”
Following a review by the Board of the structure and composition of its Committees, in July last year we established: Environment Committee AND Social and Community Committee. These new Board Committees assumed, where relevant, the responsibilities of the former Workforce Engagement Committee and Health, Safety, Environment and Quality Committee.
The purpose of the changes was to reflect the growing emergence of ESG matters and provide greater focus and oversight on these issues.
In addition, the Audit and the Nomination Committees were renamed the Audit and Risk Committee and the Nomination and Governance Committee respectively to better reflect their remits and their own ESG agenda.
Last year’s changes lasted exactly a year as we have recently announced the merger of the two committees into the Sustainability Committee – terms of reference still being drafted so I cannot share a link.
Personally, I don’t think doing this is adds any value – it just creates more reporting work, more meetings, more papers, more disclosures, when we could have continued in the same way, management doing what they are supposed to be doing and reporting to the Board on ESG matters as necessary.
We do not have an ESG committee as a committee of the board. We think that board committees should be limited to the three (in effect) mandatory ones – Audit (and Risk); Remuneration and Nomination. “ESG” (a very wide topic) is essentially a full board responsibility, to be managed, developed and implemented by the executive directors.
An aside – under South African company law there is a mandatory obligation on certain companies to have a formally constituted Social and Ethics Committee. Whilst an SA SEC does not map across exactly onto the typical ESG responsibilities, it’s a fairly good match – search “Social and Ethics Committee Terms of Reference” for some examples, which may help with drafting the ToR for an ESG committee
We have – TORs are here: https://assets.ctfassets.net/eta2vegx3yuv/1h94Y3wzAx197JKEVF62lc/a29bc4e37100840a7874575a4345f80c/ESG-Committee-Terms-Reference-151222.pdf
Some key things to think about are:
1) What is / isn’t within the ESG Committee – e.g. Does Diversity go to the NomCo or ESG Committee? Does ESG Reporting go to Audit or ESG? Does TCFD reporting go to Audit or ESG? etc.
2) Who Chairs this Committee and do they have sufficient sector-level sustainability experience?
3) Does the Committee need an Advisor? (I would strongly suggest that they do)
4) Will the new Corporate Governance Code impact the Terms of this Committee (e.g. especially around risks, data and controls elements) and how do you future-proof any terms?
I have resisted attempts to establish an ESG or Sustainability board committee. I think that each of the different elements of ESG should be considered by other forums or the board itself. For example the Board should understand the views of the workforce and the remuneration committee should align pay to the company’s purpose and understand how exec remuneration aligns with the wider workforce.
Direct Line had a CSR committee at one point which could equate to ESG.
We thought about it, but as a first step we have set up a Sustainability Committee as an exec committee, on whose activities I will report to the Board as Chair of that Committee in my Co Sec Report. There’s no push to have NED involvement at this point. PLC may have a precedent ToR, A quick Google showed several plcs that have taken this step eg Barrett Developments, Howden Joinery, and Chapter Zero – the NEDs organisation for sustainability, are likely to have something.