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Is your board’s investment portfolio in conflict with organisational purpose and values?

The boards of many for-purpose organisations oversee a portfolio of investment assets. Returns on these assets may diversify income, support running costs, provide a buffer for difficult years, or be utilised to increase social impact or member services.  

At Directors Australia, we’re seeing a heightened focus by boards across all sectors on the risks and opportunities associated with ESG (environmental, social and governance) factors. The elements of  ESG include: 

 

Positive ESG credentials may enhance an organisation’s reputation, help fulfil requirements for grants and tenders and attract customers, staff and donors.  

Increasingly, boards are questioning whether their investment assets align with their values and purpose. There is a growing realisation that negative ESG impacts within their portfolios may conflict with the positive impacts they strive to deliver.  

Our advisory team recently worked with a NFP board in the environmental sector. Directors had no visibility over their portfolio’s impacts on the natural environment they sought to protect. As part of a review of their investment governance, we worked with this board to understand their ESG beliefs, risk appetite and tolerances.  

Each organisation will have a unique set of ESG principles based on their values and purpose. In this case the board determined it had an appetite for investments with positive environmental impacts such as renewable energy, sustainable agriculture, and green property. The board resolved to exclude from the portfolio companies such as those associated with fossil fuels, environmental and cultural destruction, and violation of human rights. 

Outcomes of this assignment included: 

  • development of an ESG Investment Policy, articulating the board’s ESG objectives, reporting requirements, positive portfolio inclusions and negative screens 
  • clarification of committee and board investment responsibilities 
  • a commitment to recruit an investment advisor with aligned ESG investment and reporting credentials; and 
  • a decision to incorporate ESG investment reporting within stakeholder communications. 

With ESG becoming mainstream, a variety of ethical, green, sustainable and climate-related investment opportunities are available. Is it time your board had a closer look at what’s in your portfolio? 

Speak to Directors Australia today if you require independent governance advice or if you would like to discuss this topic in more detailPlease email Jane Crombie at jane.crombie@directorsaustralia.com 

 

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