What are boards really doing about ESG?

Boards of directors are increasingly tackling environmental sustainability issues in meetings. Given the pressure applied by media and investors in recent months, directors around the world are facing challenging questions as they seek to pinpoint the board’s role in environmental sustainability oversight: To what extent do these societal issues impact the bottom line? Is the fervor of investors and shareholders, the media, the public, and others on environmental issues just a “fad,” or will the pressure mount? To what extent should boards expend time or energy on long-term environmental sustainability planning, versus taking more cursory measures or just waiting it out?

Diligent Institute, a new global think tank and Diligent’s research arm, set out to understand just why directors were elevating environmental sustainability issues to the board level. In its first report, Winds of Change: Environmental Sustainability Rises to the Board Level (published Feb. 2019), the Institute asked 356 directors from 46 different countries to weigh in: What are your primary motivations for prioritizing environmental and sustainability issues at the board level?

1. Three primary motivators emerged.

Societal impact (40%), long-term viability (37%), and reputational risk (35%) were the most frequently selected reasons that directors prioritized environmental sustainability issues at the board level. The next most popular motivation was a full 10+ percentage points away.

2. Investor pressure was not cited as a primary motivator.

When looking at motivators, the options that didn’t make the top three are equally as interesting, particularly pressure from investors that comes in at just 9%. This is interesting because much of the discourse around governance of environmental sustainability issues has been focused on investor calls for change and the threat of investor intervention if improved oversight and transparency aren’t achieved. Despite that, Diligent Institute’s data suggests that directors don’t see themselves as responding directly to investor demands.

3. Boards expect more regulation around environmental sustainability issues ahead.

Company directors selected regulations as a reason to prioritize environmental sustainability issues to the board level 25% of the time. This runs counter to the narrative that directors are simply waiting for environmental regulation before taking steps to govern about it. Boards are being proactive. In fact, future regulations were selected by 20% of company directors and current regulations were only chosen by 13%. Strengthening environmental oversight and governance will put companies in a better place to respond to enhanced environmental regulation down the line.

Dottie Schindlinger, Vice President and Governance Technology Evangelist of Diligent Corporation and Clare Wardle, General Counsel and Company Secretary, Coca-Cola European Partners will be speaking at ICSA’s Annual Conference on 9 July - What are boards really doing about Environmental Sustainability Governance 

Don’t miss the full report.