Between Regulation and Responsibility: The Board of Directors’ Role in Managing ESG Risks
ESG regulation is undergoing significant changes worldwide, with some jurisdictions expanding sustainability requirements while others are scaling them back. This evolving regulatory landscape raises a fundamental question: Does the board of directors’ responsibility for managing ESG risks depend on explicit regulatory requirements, or does it arise from the board’s inherent duty of oversight? As reflected in the Caremark doctrine, directors have a duty to establish appropriate oversight mechanisms for the company’s mission-critical risks, a responsibility that does not depend solely on the existence of explicit ESG regulatory requirements.
Against this backdrop, effective ESG governance requires boards to take a proactive approach. Key recommendations include formally incorporating ESG oversight responsibilities into corporate governance documents, developing a comprehensive understanding of the company’s ESG risk profile through the principle of double materiality, and integrating ESG oversight into existing board committees. These measures help ensure that ESG risks are addressed as an integral part of corporate risk management rather than merely as a matter of regulatory compliance.
Despite regulatory uncertainty, many companies continue to strengthen their ESG commitments. However, findings from Israel demonstrate that increased sustainability reporting does not necessarily translate into effective board oversight. Ultimately, the board’s responsibility to identify, monitor, and oversee the management of material ESG risks remains essential, even as regulatory frameworks continue to evolve.
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