Audit committee chairs say success with ESG policies can often depend on the level of “personal interest” shown by senior managers, including chief executives, according to new research.
One chair sector said the improvement of ESG performance depended on other priorities in a business “but probably most important is whether the CEO ‘gets it’”.
Another chair said investor enthusiasm was a key driver, though they did not always believe the interest was genuine. “The cynic in me sometimes questions the real commitment of investors to ESG in the long run. As long as ESG is a contributor to profitability and attracting further investments and not just ticking boxes, it will continue to be engaged with.”
The research, conducted by YouGov, on behalf of the Financial Reporting Council, the UK’s governance watchdog, illuminates many of the current attitudes towards ESG inside British companies. It reveals that leadership and investor pressure appear to play key roles. The report concludes most auditco chairs believe ESG is an “important part of good business”, its significance has increased, and there is a good understanding of ESG activities in their organisations.
Mark Babington, the FRC’s executive director of regulatory standards, says: “We are pleased to see that Audit Committee Chairs are already focusing on, and recognise the importance of, ESG reporting and assurance for their organisations and stakeholders—and this report provides valuable insights into the current practices and challenges faced by ACCs in this rapidly evolving area.”
However, there were also some signs that not every ESG concern has been ironed out. The report says a “small number of [audit committee chairs] felt tensions can arise when trying to prioritise ESG activity with profit-making responsibilities, especially in relation to environmental activities”.
Know uncertain terms
There are differing views too on what ESG means. One auditco chair says: “ESG can feel quite nebulous, you end up with a combination of issues which don’t always connect.” Another says: “Some say that E, S and G are interconnected but I am of the view that E, S and G are separate entities that are mashed together.” Yet another called ESG a “horrible acronym” that has been “artificially thrown together”.
That may be an indication of work still to be done unravelling the ESG concept and what it means for boards and corporate policy.
Some worry that the “nebulous” nature of ESG is a weakness. “It is about being honest about what you can do and can’t do and that you try and avoid the greenwashing,” one chair said.
Some may find it easier to focus on one of the three issues at a time. Responses suggest most have invested more time in the “environment” element of ESG. One chair said the “E”—environment—was getting the “lion’s share of focus, resources and time at board meetings”.
Another said: “We’re thinking about supply chain, carbon mapping and looking at emissions. Almost all of our emissions are scope three but we still need to think about waste.”
The report concludes that differences in attitude to ESG can depend on the sector that an auditco chair is in—some just feel it more than others. Auditco chairs also face a challenge from the sheer range of ESG policies and activities that demand implementation. Sub committees are one response, as is bringing in outside help.
The environment has become the main focus for many, chiefly because it offers a better opportunity for measurement.
ESG remains a work in progress across the business sector, with audit committee chairs coming to terms with its complexity and their role in the process. ESG will need some refinement; some managers will need more encouragement to make it happen. There are few easy answers.