Fortune 100 board members are looking beyond the noise associated with anti-ESG backlash and are instead ensuring their companies are well-positioned to deal with sustainability risks and opportunities.

NYU Stern Center for Sustainable Business’s research into Fortune 100 boards finds that the number of sustainability or ESG committees has grown from 22 in 2018 to 89 in 2023. In addition, we find that board members have increased their relevant ESG credentials—from 29% having ESG credentials in 2018 to 43% with ESG credentials five years later.

In response to the current environment and regulatory scrutiny, board members need to wrestle with a number of unconventional business issues, from the impacts of climate change to diversity, equity and inclusion.

Boards need to understand and capture the upsides—such as how the company can build new products, services or processes related to sustainability topics—as well as manage risks, such as that of extreme weather disrupting supply chains. This requires a deep dive into the impacts of material sustainability issues on the company’s business model as well as its business strategy.

To ensure that the board provides helpful oversight to the executive team on material sustainability issues, there are a number of best practices emerging:

Five board moves to consider

1. A stand-alone sustainability/ESG committee with its own charter focused on integrating sustainability into business strategy is created. This should include a chair with a strong background in sustainability.
2. The other board committees include relevant ESG topics into their charters. The nominations committee recruits board members with ESG credentials and arranges for ESG training for those that do not. Audit includes ESG reporting and disclosure. Compensation includes defining ESG compensation targets.
3. Board members are trained in the material ESG issues for the company/industry so they understand the relevance to business performance. A company heavily dependent on water, but based in water-deficient areas, for example, needs to have water stewardship and water risk management systems that reduce water use and thus reduce exposure to risk.
4. Board members are acquired with relevant ESG credentials. If a company has extreme exposure to climate or the low carbon transition, for example, there should definitely be a board member with expertise in that area. If the company relies heavily on front-line and/or factory workers, there should be a board member with expertise in worker welfare and labour relations.
5. The board oversees the capital allocation assigned to meet the required sustainability risk and opportunity management and ensures that internal hurdle rates do not stop needed capital investments (or ongoing operating investments).

What does this look like in practice? Here are a few examples of companies that have developed strong board representation in material ESG issues:

The right chemistry

In 2018, Dow Chemical stood out as a leader with six strategy-relevant, ESG-credentialed board members. In 2023, it continues to build board expertise in alignment with its ESG exposures. To address its material environmental risks, Dow now has six board members with relevant environmental credentials (up from three in 2018) with expertise in renewables, climate, clean air and water tech, plastics reduction, nature/biodiversity, and sustainable finance.

Eight of Dow’s board members have social credentials, including workplace diversity, sustainable development, non-profit management (up from one). It has one board member with governance credentials (down from two) with expertise in accounting and financial reporting. It also has an ESG committee and a MSCI rating of AA (a leader) and a Sustainalytics rating of 22.5 (medium risk).

In 2018, Liberty Mutual, which provides property and casualty insurance, despite significant climate risk exposure, had no board members with climate credentials, though two were affiliated with energy companies. In response to the growing strategic importance of climate change for their sector, by 2023 they had three board members with climate, low carbon transition, and renewable energy credentials.

Liberty Mutual also has two board members with social credentials in sustainable business and health care advocacy. Here, the lack of cybersecurity expertise stands out. In 2018, they did not have an ESG committee; today, they do.

A healthier approach

In 2018, healthcare supplier McKesson, which has been sued by various states as contributing to the opioid crisis, and has material environmental (energy, materials, water), social (access to medicines, ethical clinical trials), and governance (misleading advertising, doctor “incentives”) issues, had zero board members with any relevant ESG credentials on their board.

In 2023, the company had made considerable progress: they had two board members with E credentials (in renewable energy and sustainable business), three with S credentials (in workplace diversity, health care advocacy and civil rights) and three with G credentials (telecommunications security, accounting, and corporate law). They had no ESG committee in 2018; they have one in 2023.

McKesson provides an interesting case of a board that clearly did not pay attention to creating stakeholder value and that, after a major crisis, was reinvigorated by a board with far more diversity and relevant expertise. In an interesting correlation: McKesson’s stock price was at its nadir in December 2018 at $108 (£85); in May 2024, it was $545. We tend to blame boards when things go wrong with governance—in this case, we need to celebrate that they clearly are doing something right!

Fortune 100 boards are looking beyond the noise to where their fiduciary duty lies—with understanding and ensuring good management of the material risks and opportunities posed by sustainability in their sector. Some are putting in place the governance structures and experience needed to provide strategic oversight. Some are not. But the trend points to more boards taking this on as part of their charter to ensure good corporate performance.

Tensie Whelan is Distinguished Professor of Practice for Business and Society at the NYU Stern Center for Sustainable Business.