How Private Company Boards Can Unlock ESG’s Strategic Value

Private company directors are becoming increasingly aware of the importance of environmental, social and governance matters (ESG) to investors, financing sources and the company’s bottom line. The events of 2020 and 2021 heightened interest in ESG matters for all businesses. If your company thinks of ESG as a narrow, non-core activity that primarily focuses on philanthropy through corporate giving and volunteering – you are likely missing out on great strategic opportunities.

With the growing interest in ESG activities among employees, customers, investors and other key constituents, attention to a company’s ESG position could provide competitive advantages. Private companies that excel at identifying and incorporating ESG opportunities and risks into their strategy can enjoy a competitive advantage in the marketplace and among financing sources and investors.

Strategy discussions that include ESG and the potential for innovation, disruption and value creation from effective ESG initiatives can add significant value. How ESG issues are framed for discussion in the boardroom – and across the company – will influence whether they are viewed as business issues that are essential to long-term value creation. It is helpful to frame the discussion in business terms, particularly risk, opportunity, efficiency and financial performance. An integrated ESG strategy also includes considerations related to capital allocation, supply chain management, partner choice and investments – many of which create ESG opportunities and risks that can affect the business.

A fundamental step in ESG strategy development for private companies is to identify and prioritize ESG topics that are most relevant to the business and can have the most meaningful impact. This is a critical early step as it helps filter ESG items into a more manageable set on which to focus.

To unlock ESG’s potential strategic value, it is important for the private company board to understand the financial impact on the company’s bottom line. For example, a board review of “climate change” can be framed as a discussion of the risks water shortages pose to data centers or manufacturing operations, the potential financial impact these risks pose, and how the company can mitigate these risks in a way to improve bottom-line performance. The discussion could also encompass the cost savings of using less fuel and changing to electric-powered vehicles for local deliveries.

Board discussion of “social” matters could include providing educational and training opportunities for employees to move into higher-level positions. These are likely to improve the quality and caliber of the company’s workforce, result in a better informed and engaged workforce, and enhance corporate culture. Enhanced employee safety training and initiatives can result in operating cost savings, more injury-incident-free days, reduced worker’s compensation claims, less time off work, and improved employee morale. These types of initiatives can help the private company be more competitive with the quality of its products and services, and even pricing, to customers as it reduces operating expenses.

In the governance area, there is significant research supporting that diverse teams make better decisions as they view opportunities and risks through multiple lenses, thus helping to deliver better financial performance.

As part of their oversight of ESG as an integral part of the company’s strategy, private company boards can help lead the company forward by focusing on big picture questions:

  • Which ESG risks and opportunities will have the largest impact on the company’s income statement and balance sheet?
  • Which ESG factors are relevant to the company’s ability to operate its business effectively, efficiently and profitably now and in the future?
  • Which new opportunities created by ESG initiatives show attractive financial returns?
  • What is the time horizon to realize positive gains from investing in ESG initiatives?
  • Do the company’s long-term growth forecasts appropriately reflect ESG considerations, related investments and potential cost savings?
  • How is the company embedding ESG into strategy, operations and culture to drive long-term performance?
  • What management incentives are in place to promote ESG?
  • Do any of the company’s customers have ESG requirements for their suppliers? What about desired future customers?

It is important for the board to understand how the company’s ESG profile could affect customer decision-making. What if customers were to choose or move business to a competitor because of its ESG practices? A number of large customers are requiring increased ESG disclosures from their suppliers to support the customers’ ESG commitments. Benchmarking the company’s ESG performance against that of its key competitors can shed light on opportunities for efficiency and improvements that previously might have been overlooked.

As ESG disclosures become more prevalent from private companies, those companies that can demonstrate their ESG capabilities are likely to be more attractive to acquirers looking to develop or supplement their own capabilities. On the other hand, acquisition “partners” that are incompatible on ESG metrics are less likely to be a good cultural fit and more likely to raise integration challenges for a buyer, including the costs of bringing the target into compliance with the buyer’s ESG standards.

It also is essential for private company boards to understand how evolving ESG investing and stewardship trends are impacting access to debt and equity capital and relationships with investors. Some financial institutions consider ESG factors in their lending and investing decisions, and others are moving in this direction. Boards need to be sufficiently informed to confirm that the company is effectively capitalizing on these trends with financing sources and investors.

Private company boards can unlock the strategic value of ESG by their active oversight of ESG issues and initiatives that are material to the company’s business.


Maryann Waryjas is a corporate board director and C-suite leader recognized for her ESG focus and years of boardroom experience. She serves on the Morrow Sodali Global Strategic Advisory Board and previously served on the Board of Directors of The Chicago Stock Exchange, where she was Chair of the Nominating and Governance Committee and a member of the Executive, Audit, Regulatory Oversight and Special Transaction Committees. A member of the National Board of Directors of the Girl Scouts of the USA, she was a Private Company Director magazine 2020 “Director to Watch” and is a certified NACD Board Leadership Fellow.
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