ESG: “Important but Not Pressing” for Boards, Say Directors

In a growing ESG conundrum, corporate directors report conflicting attitudes and actions on board governance practices, according to a recent joint research study by Corporate Board Member and Nasdaq. The study surveyed corporate directors at 300 U.S. public companies to benchmark the level of attention given to ESG and the actions boards have taken to measure and accomplish goals, finding that “despite public scrutiny and increasing investor pressure, it remains a secondary concern overall, best characterized as ‘important but not pressing.’”

The majority of boards reported they delegate ESG to a committee, and for the 70% of boards that engage with shareholders on ESG, almost half have the board chair or lead director represent the board during the engagement. Other findings include:

Environmental. 57% of directors indicated enhancing environmental oversight was important but not pressing, with a surprising 18% claiming it is not important at all. While 21% stated it was a top priority, companies run the gamut with setting goals and measuring targets over time, with 29% establishing targets with no defined timetable and 32% having no targets at all.

As the SEC’s proposed climate-risk disclosure looms, one might assume a sense of urgency with prioritizing environmental goals; the rules would require boards to publish specifics around their oversight practices including risk policies and strategies, the level of director expertise and the frequency of discussions. However, only 6% of directors feel goal setting and monitoring would impact the company’s success for the year.

Social. Boards report more attention and progress in this area, but still show mixed signals in how they demonstrate the importance. 71% of directors have set goals regarding diversity or human, yet only 40% have timeframes to achieve the established goals. As this is another area where public disclosure rules are pending, boards have recognized the importance of how human capital strategy connects to overall business success, which could propel more organizations to advance these goals faster than environmental initiatives.

Governance. As governance is the “bread and butter” of a board’s role, it is not surprising that 81% of directors surveyed agreed with the importance of enhancing governance practices and 71% felt goals should be established. However, similar to E and S perceptions, only 30% felt this was a top priority and 28% have actually set goals. Interestingly, this may be due to directors believing that they have already set and accomplished their goals in this area as if it were a one-time process. The article points to the evolving nature of business and the importance of reviewing and updating governance practices continuously to meet the changing needs.

Finally, few organizations are taking steps to quantitatively correlate the value of their ESG achievements to shareholder value. Most commonly, direct investor feedback is used to make these correlations as well as relative stock performance versus peers.