Have an accountable board governance structure for ESG oversight, says Dhaliwal
With rising stakeholder expectations, corporate boards are enhancing governance practices and increasingly embedding an environmental, social and governance strategy into their organization at all levels to ensure meaningful progress.
Bindu Dhaliwal, senior vice-president, ESG and corporate governance at CIBC, spoke at Canadian Lawyer’s ESG Summit last week about the importance of having an accountable board governance structure for ESG oversight.
According to a recent report by WTN, an impressive 80 percent of Canadian public companies have incorporated at least one ESG factor into their executive compensation plans, which is a significant demonstration of their commitment to ESG, Dhaliwal said during her keynote presentation.
Despite some anti-ESG sentiment in the US, Canadian companies are still largely proceeding with their ESG agendas, she noted, albeit while exercising more caution to avoid accusations of greenwashing.
Dhaliwal – who is also a lawyer by background – advised organizations to ensure a well-defined board and committee oversight responsibility. This involves tailoring an oversight approach to the organization’s size, complexity and ESG risks, she said. It may involve creating a specific ESG committee, or delegating to an existing committee, or even delegating accountability to a number of relevant committee mandates.
“Regardless of whether it’s a separate committee or multiple committees, what’s really important is a comprehensive sharing of information across committees,” said Dhaliwal. “At CIBC we do a matrix every quarter that demonstrates the different aspects of ESG that went to all the different committees, and we found that was really helpful for the board and the board chair to see how ESG is integrated and how we defined our ESG priorities and our strategy.”
ESG is no longer presented to the board as a standalone document at CIBC. Instead, it is incorporated into the corporate strategy as part of the bank’s annual updates. Every business unit and functional group has ESG goals and metrics to follow, Dhaliwal said.
“From an oversight perspective, the board has delegated to our corporate governance committee the responsibility for reviewing our ESG strategy and any related matters,” said Dhaliwal. “We’ve also taken the approach that all committees have different aspects of our ESG strategy.” For example, the audit committee is responsible for disclosures and internal controls and processes.
Boards play a critical oversight role by ensuring that material ESG risks and opportunities are managed and integrated into business strategy. Dhaliwal advised integrating ESG strategy into corporate strategic objectives, rather than keeping it siloed.
Having a methodology as to how you came to your ESG priorities, and how they are linked to your organization and your purpose is also vital, she added.
Dhaliwal noted that CIBC uses an ESG Index – a scorecard that tracks progress on ESG priorities and forms 10 percent of variable compensation. Every business unit takes responsibility for the index, and it is reported quarterly.
“Reporting quarterly makes a big difference, and our board really appreciates the line of sight because they want to see where we’re going from a compensation perspective,” said Dhaliwal. “The ESG Index is a mix of public metrics and ones that we have internally, so we also think that’s a really good driver to move the business towards public reporting and public metrics.”
Focusing on director education around ESG matters is also critical, Dhaliwal said, as boards are expected to have knowledge, experience and skills to oversee ESG risks and opportunities for the organization. This can involve bringing in third-parties to provide deep-dive sessions on different matters.
“Our board found it really helpful to hear third-party perspectives. It can be helpful to bring in experts on issues, particularly around climate, Indigenous engagement, and AI,” Dhaliwal said.
An investor day on ESG could also help to enhance engagement with shareholders and better manage investor expectations which are key to ESG success, she added.
