From Strategy to Stewardship: How Boards Can Drive ESG Transformation

Environmental and social realities are more deeply ingrained in businesses today and the challenges they pose to Corporate Governance are so real, resulting in its fundamental restructuring. Boards of directors have to play more active roles in sustainable value creation and financial performance. This asserts boards to go beyond the approach of oversight and into guardianship of ESG (Environmental, Social and Governance) transformation. This blog offers you insights into potential options for the evolution of roles to inculcate ESG into the very fabric of organisations leading to purposeful and impactful transformations.

Why Boards Must Shift From Strategy to Stewardship

Traditionally, boards have been concerned with financial strategy, risk and compliance. ESG matters were peripheral—confined to sustainability reporting or a special sub-committee. But the world has moved on:

• Stakeholders—Ideally investors, employees, regulators and communities—expect greater accountability and sustainability-focused business models. (ESG for Boards)

• ESG matters are becoming more material to long-term business performance, rather than reputational or "nice-to-have". (Harvard Law Forum on Governance)

• The governance role itself needs to change: It is no longer enough to respond; boards must be forward-thinking to anticipate, integrate and guide ESG risks and opportunities. (IMD Business School)

In practice, boards need to stretch beyond strategy—where setting direction is often implied—to stewardship, which involves fostering sustainable business operations, maintaining value for generations to come and embedding purpose in governance. This is not merely about checking the ESG box, however but instilling ESG into the very fabric of governance. 

From Oversight to Ownership: The Board's Evolving Role

Transitioning from planning to stewardship, boards ought to shun old practices, realign governance frameworks and multiply their pursuits. The following are some important aspects of this transformation: 

a) Integrate ESG into the core agenda

Instead of addressing ESG as a standalone "agenda itBem", the board can incorporate it into all key decisions—strategy, capital allocation, risk management, business model innovation. Boards that persist in viewing ESG as an add-on will deprive themselves of the chance to unlock its full potential. (Harvard Law Forum on Governance) 

b) Enlarge the board's capabilities

Most boards say they are not well-positioned to handle the scope of ESG topics: climate risk, human capital, supply chain robustness, social justice, regulatory expectation. (Harvard Law Forum on Governance) Education for the board, adding board members who are literate in ESG and using outside expertise are the most important steps. (EY)

c) Revise governance structure

Which model of governance works best for ESG stewardship? Some set up a specific ESG/sustainability committee; others incorporate ESG within current committees; some reserve full-board accountability for ESG. Each has advantages and disadvantages. (IMD Business School) The board has to decide and clearly assign responsibility—though it should maintain accountability even when delegating.

d) Hold management accountable – and themselves too

Boards should break free from passive watching and become active guardians. Boards should establish relevant ESG goals, assess performance, align incentives and check on culture and skills. (KPMG Assets) Independent directors have a significant role to play in injecting objectivity and rigour into this process. (Directors Institute)

e) Develop the right mindset and culture 

Stewardship is as much a matter of mindset as mechanism. Boards require grit, long-term planning, willingness to challenge the norms and tenacity to adapt. As the research states: "There is a bravery in not accepting incrementalism." (Egon Zehnder) 

A Practical Roadmap for Boards

Below, in the ascending order, are guidelines on how to lead ESG transformation, i.e. from intent to execution leading to achievement. 

Step 1: Define Purpose and Vision

• Ask the definition of sustainability; not the general one but one that suits your business needs and model. How does our purpose and our values align with ESG? 

• Translate this into your board vision, considering your ESG commitment and goals (e.g., carbon neutrality goals, uplifting and socially inclusive partnerships and regenerative value). 

• Alignment of the vision with the strategy is the first step and making it an organisation-wide practice is the second. 

Step 2: Conduct a Materiality and Readiness Assessment

• Determine the most salient ESG issues for your industry, business model and stakeholder universe. (IMD Business School) 

• Determine current maturity: governance structure, management capability, metrics, culture, disclosures. (independentdirectorsdatabank.in) 

• Determine gaps in board capabilities, process, strategy and oversight. 

Step 3: Organise Governance and Accountability

• Select a governance model: stand-alone ESG committee, within existing committees, full-board responsibility. (IMD Business School) 

• Develop or review board charter/committee terms to incorporate ESG duties: Who watches, who reports, who escalates? (Drova) 

• Establish roles between board and management: what is at the board level, what is executive level. 

Step 4: Develop Board Capability and Culture

• Offer ESG training to all directors: climate science, social equity, regulatory environment, stakeholder expectations. (diligent.com) 

• Appoint new directors with sustainability, social or ethical skills (or younger/different directors to inject new thinking). (Egon Zehnder) 

• Engage in reflection and challenge: are we posing the correct questions? Are the current measures enough to bring about a change or is it creating only a compliance mindset? 

Step 5: Build ESG into Strategy and Risk Management

• ESG considerations should seep into every aspect of your business. This includes systemic plans, budgeting and finance and scenario scrutiny (e.g., climate transition and social disruption). (IMD Business School)

• Embed ESG within enterprise risk management: map ESG-triggered risks and opportunities, evaluate scenarios, track emerging challenges. (KPMG Assets)

• Form clear and viable ESG targets and KPIs with obtainable and verifiable performance measurements and reporting.

Step 6: Monitor, Report and Review 

• Give transparent ESG reports and disclosures with stakeholders in a timely manner. (aplanet.org)

• Guage ESG target-achievement disparity every now and then at board meetings: have the goals been met or not; what the constraints are; etc. 

• Bring innovations or at least use different tactics with changing conditions — realising that sustainability transition is a destination with differing paths. 

Step 7: Develop Culture, Innovation and Ongoing Improvement 

• Build an organisational culture; sustainability should percolate into every nook and cranny of the organisation and should recode its DNA, viz. from raw material sourcing to final development; from stakeholder management to employee engagement.

• Support innovation in sustainable business models, circular economy strategies and social value creation. (aplanet.org)

• Stakeholder dialogues, peer engagement activities and foresighted scenarios meant are great means of change foresights and anticipations.

Challenges and How Boards Can Overcome Them

From strategy to stewardship is not an obstacle-free journey. Boards need to know what traps lie ahead and take mitigating measures: 

• Knowledge/skills gap: Few boards have ESG competency. Mitigate by training, advisory panels, appointing ESG-literate directors. (Harvard Law Forum on Governance) 

• Siloed governance: ESG as an add-on. Address by integrating ESG into the whole board agenda and linking to strategy. (KPMG Assets) 

• Data and measurement challenges: ESG metrics continue to evolve; complexity of comparability. Perfection may be a myth; nevertheless, insisting on better stats on the performance, data etc. after certain intervals can help being on the trajectory. 

• Short-term stress vs long-term fulfilment: Short-term goals give the biggest nightmares to boards as they are the first priority for shareholders. Stewardship by definition means balancing the two yet creating value for the largest tenure. 

• Cultural inertia: Sustainability should be considered as a matter of transformation and not a mere checkbox practice or advertisement strategy. The board must lead culture change and hold management accountable. (independentdirectorsdatabank.in)

Why Stewardship Creates Value

When boards transition from passive monitoring to active stewardship of ESG, a number of value drivers become apparent: 

• Risk avoidance: Improved anticipation of ESG-led risks (climate, regulatory, reputation) safeguards the organisation. 

• Opportunity capture: ESG change unlocks new markets, innovates, enhances brand and talent attraction. 

• Stakeholder trust: Trust in its entirety, i.e. that of the consumers, regulatory bodies, employees and investors increases with open governance and BRSR reporting. 

• Agility and resilience: Establishments with a disruptive inclination are likelier to show better outcomes under changes and turmoil. 

• Long-term value creation: As business purpose, social good and environmental sustainability are aligned through stewardship, the latter creates lasting value—not only for shareholders but for all stakeholders. 

The Stewardship Mindset: What Boards Must Think and Act On

The following are questions that should be asked by boards on a regular basis in order to reflect the stewardship mindset: 

• Is ESG an important parameter being considered an indispensable or a parallel practice.

• Does the establishment have a healthy mix and match of variety among employees’ background, attitude, aptitude and approach.

• How are we connecting ESG goals to capital deployment, investments and performance metrics?

• Are our incentives—executive and board—attached to sustainable results instead of short-term returns?

• Do we have regular dialogues with all the stakeholders, taking their opinions on the matter and knowing their expectations from us or not? Are we taking their expectations into consideration as well or not?

• Is our evaluation of the ESG performance on a par with our reviews on revenues? What are some ways we can bridge the two and excel in both aspects? 

• Is our approach proactive or reactive?

Conclusion: Protecting the Future While Propelling the Present

For boards of today, the path from strategy to stewardship in ESG evolution is imperative and inevitable. The future of business is more tightly interwoven with sustainability and boards that merely hold guard over financials will be out-of-sync with stakeholder expectations and systemic evolution.

Boards have to shift themselves to be stewards: custodians of value—not only for now but for the future. They need to integrate ESG into strategy, governance, culture and decision-making; give themselves the knowledge they need to lead; and remain steadfast through the long-haul of change.

When boards are successful in this function, they can not only protect their organisation's licence to operate but also innovation, stakeholder trust and long-term value creation. As they do so, they are not merely performing their fiduciary responsibility—but their wider duty to society and the world. 

Our Directors’ Institute - World Council of Directors can help you accelerate your board journey by training you on your roles and responsibilities to be carried out efficiently, helping you make a significant contribution to the board and raise corporate governance standards within the organization.