As the COP26 climate conference launches in Glasgow, are boards prepared for dealing with the demands of environmental, social and governance (ESG) factors? A new report suggests they have improved markedly. But it also finds that women are pushing the progress—and there is more work to be done.
Research from not-for-profit The Sustainability Board Report, says 71% of the boards at the world’s largest 100 companies have a relevant committee overseeing ESG topics, up from 46% in 2019. While that sounds like good news for the planet, the research finds that only 40% of directors on these committees can be described as “ESG conscious”.
And there is a distinct gender difference. Among the members of ESG committees, 52% of the women are ESG conscious, while only 36% of the men can be said to have the same awareness. The finding leads The Sustainability Board Report to conclude that “women are driving the board-level conversation on sustainability”.
Some evidence of that can be found in the makeup of ESG committees. The research finds 42% are women, while women make up only 29% of total directors.
The results come in the same week that other research finds that many companies are failing to spot the link between gender and the pursuit of climate goals.
Women and ESG preparedness
Meanwhile, the corporate world is braced for the policy decisions that will emerge from COP26, while many campaign groups have rushed out research ahead of the gathering in an attempt to influence the policy debate.
Boards have become ever more central to the climate, now occupying a position managing frontline policy decisions. The Sustainability Board Report says its findings mean boards need more women if ESG preparedness is to improve further. The report says the research results make “another business case for greater gender diversity on board and in senior management”.
And while preparedness might be improving, sustainability policymaking remains “lacklustre”. Boards need to jettison boiler plate sustainability statements in favour of confronting “material factors”. Boards, as a whole, should sign off ESG reports, its says.
Lastly, there is a warning that if boards fail to develop their ESG policies, other actors may step in to fill the leadership void.
“If BoD (boards of directors) don’t act,” concludes the report, “someone else will step in and push the agenda on sustainability. Hence creating ESG preparedness also functions as a defence mechanism.
“Directors need to upskill and become at least conscious about ESG issues, but better—competent. What that exactly means will be up to every individual and their specific context.”
Pressure on boards
The coming year is set to see more pressure fall on boards to act substantively on ESG factors, especially the climate component. Premium listed companies in the UK face implementing mandatory use of TCFD (Task Force on Climate-related Financial Disclosures) guidance this year, while regulators under Joe Biden are pushing ahead with consultation on the introduction of mandatory ESG disclosures.
In Europe, following campaigns and many complaints, officials are at an advanced stage of replacing the Non-Financial Reporting Directive with a brand new law, the Corporate Sustainability Reporting Directive.
Elsewhere, the International Financial Reporting Standards Foundation is working on the development of a set of new sustainability reporting standards set to kick off with measures for disclosing climate risk. The UK has already committed to adopting the standards once they are ready.
The pressure is mounting on companies to get behind the drive to tackle the climate crisis. The Sustainability Board Report indicates boardrooms may be changing. But they will need to work harder.