Despite intense clashes over ESG in US political debate, more than a third of the country’s audit committees name the governance principle as one of the top three items on their agenda.
A survey of audit committee members for the Centre for Audit Quality (CAQ) reveals that 39% of those polled name ESG disclosure and reporting as one of their top concerns in the next 12 months, behind cybersecurity, 63%, and enterprise risk management, 45%.
ESG in corporate governance has become a major point of conflict during increasingly bitter exchanges between Republican and Democrat politicians. Republicans have labelled ESG “woke”. This week, the Florida governor Ron DeSantis helped launch the introduction of new laws that would block the use of ESG “in all investment decisions at the state and local level, ensuring only financial factors are considered to maximise the return on investment, protecting retirees and taxpayers alike”.
DeSantis’s PR materials claim ESG investment practices “prioritise woke ideals and virtue signalling over common sense financial practices”.
However, the Securities and Exchange Commission (SEC), has been working on the introduction of new mandatory climate risk disclosures for US companies.
The CAQ report reveals ESG remains a major concern for audit committee members. Survey respondents say audit committees have responsibility for oversight of ESG disclosures at 34% of companies, while at 27% it was boards and 16% said their nominations or governance committees were in charge of ESG.
“These findings are not surprising given that the conversations within and beyond the boardroom around ESG is top of mind,” says the CAQ report.
Audit committee members appear to be reacting to “heightened expectation” among investors that they disclose “how their governance structure is evolving to consider ESG more intentionally”.
CAQ’s report, conducted by Deloitte, also finds that only 58% of audit committees track the gender of their members, 48% monitor ethnicity and 44% age.
The report says: “While tracking diversity is often mandated at the board level, diversity should also be considered across the board committees when thinking about composition.”
A whopping 92% of those polled say their audit committees have the “appropriate experience”, though 42% say they anticipate “replacing one or more members” in the next year.
When it comes to skills, audit committee worry about not having enough cybersecurity or technology expertise, particularly among financial services firms.