Directors around the world are concerned that their firms won’t be able to deliver on ESG goals, said INSEAD recently when releasing results of a survey.
Citing the board’s lack of knowledge, data, and capabilities as the top barrier to providing effective ESG oversight, directors — at roughly 70% — said they are only moderately or not at all effective at integrating ESG into company strategy and governance.
- Less than half of the directors surveyed —47%— believed their board has sufficient ESG competence and experience to challenge management on ESG plans and exercise board oversight on execution.
- Boards are taking action to address those gaps: the most common approaches to supplementing board knowledge are regular updates from an internal executive with responsibility for ESG (48%) and intermittent updates from external experts (40%).
- When it comes to aligning a company’s long-term business strategy with ESG challenges, 91% of directors said that boards should focus more on improving strategic reflection than on monitoring operations.
- Still, less than half of that 91% felt they are effective at driving such strategic reflection.
“When it comes to meeting ESG goals, it is critical for boards to move from a compliance mindset to bringing a true strategic lens to those issues,” said Ron Soonieus, a senior BCG advisor, director in residence at the INSEAD Corporate Governance Centre,“However, many have not yet remade the board agenda to make time for that critical strategic thinking.”
The top ESG issue: Climate
Climate change is among the top three ESG issues in terms of expected financial impact for all eight industries captured in the survey except one (health care) and it holds the number one slot for consumer, industrial goods, energy, and utilities, INSEAD pointed out.
Yet, among companies that have set a net-zero commitment, only 55% of directors reported that their company has prepared and published a plan for hitting that target, survey results indicate..
And an even smaller share —43%— said their company has published financial statements accounting for the implications of climate change, the firm added.