Boardroom attention to ESG matters is increasing rapidly among the world’s largest listed companies, according to new research, which reveals stark increases in the number of directors who consider themselves “ESG-engaged”.
The Sustainability Board Report provides a snapshot of attitudes among directors at the biggest 100 companies in the world.
Of the 1,260 directors involved in the survey, just over a quarter (27%) are members of an ESG committee, while 45% of those—up from 19% in 2019—say they are ESG-engaged.
The number of companies with an ESG committee is up too: from 54% in 2019 to 80% this year. The report’s authors say this signals “significant improvement in representation of ESG-engaged directors on committees”.
The news comes as focus intensifies around the world on meeting carbon reduction targets, improving boardroom diversity and a host of other sustainability topics.
However, there has been a backlash. In some jurisdictions, attention to ESG has been swept up in an increasingly polarised debate between conservative and liberal political views. In the US, efforts by regulators to introduce mandatory climate-risk reporting were met with entrenched resistance, with many labelling ESG part of a “woke” liberal agenda, and little to do with running companies.
Despite political opposition, there is a recognition among businesses that sustainability is a key topic for corporate leaders. According to Michael Ensser, chair-elect at Egon Zehnder, the consultancy behind the survey, it is now impossible to disentangle sustainability from profits.
That means ESG should be at the centre of boardroom thinking, not merely as compliance and risk mitigation topics. “That requires board members to bring more than their heads to the game: they need their hearts and souls too,” Ensser writes in the report.
That may be under way in some quarters. The survey found a strong link between gender diversity and ESG engagement. Polling finds female directors are 60% more likely to be ESG-engaged and 24% more likely to be on an ESG committee. Individually, women are found to be 22% more ESG-engaged than male peers.
However, as central as ESG may have become, chief executives may be focused on other issues. Broadly, boards rank ESG sixth in their list of priorities, with financials (profitability, share price and sales) topping the list.
There may also be a skills deficit. Boards collect and monitor ESG metrics, but often struggle with knowing what to do with the data. The study found that “many boards lack the skills and knowledge to translate such monitoring into improved governance… .” And that may result in big variations between companies and sectors on setting and meeting ESG goals.
Filling the skills gap, the report suggests, may be solved by improved boardroom recruitment. However, in some jurisdictions, well-informed all-rounders are still considered the best directors. That may have to change if boards are to make the kind of progress implied by the report.
ESG remains a headline issue, though increasingly controversial in some places. The Sustainability Board Report suggests there is work to be done if many companies are to make progress on moving the issue to the centre of strategy. That said, ESG itself remains a contested concept, containing many facets and areas of contention. That doesn’t make it impossible to manage. But it does make the project more complicated.