Survey: Boards Are Working to Align ESG with Business Strategy

Also, subject matter expertise trumps diversity concerns when it comes to board composition.

A coherent ESG strategy with clear priorities helps create sustainable organizational value and stronger financial outcomes.

According to the Fostering Corporate Governance and Enhancing Board Effectiveness Survey, conducted by Nasdaq and WTW, a number of factors are driving boards to prioritize ESG, including the desire to achieve alignment with business strategy and the need to respond to regulatory pressure. We spoke with Ken Kuk, a senior director for WTW, about trends such as board responsibility for ESG oversight and directors' climate change expertise.

Directors & Boards: When you look at the results of the Nasdaq/WTW report, Fostering Corporate Governance and Enhancing Board Effectiveness Survey, in what ways are boards finding that a solid ESG strategy adds value?

Ken Kuk: Eighty-five percent of board members surveyed indicated the most important factor influencing their ESG priorities is alignment with business strategy. They listed other factors, such as risk mitigation, reputational harm and regulatory pressure. But, by far, board members indicated that the right ESG investments should lead to sustainable organizational value and stronger financial outcomes.

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DB: What trends are evident in the area of where ESG oversight is being housed?

KK: We see that the strategic discussion about ESG and sustainability rests with the full board. Most board members want to provide some input on these issues. The full board would delegate specific topic areas (e.g., the human capital and compensation committee would address ESG in incentives or anything related to employees such as DEI, the audit committee would discuss climate accounting, the nom/gov committee would handle things like governance risks, and so on). We also see increasing prevalence of dedicated sustainability committees as well as finance and risk committees that will discuss other aspects of ESG and sustainability. We also found that more boards expect all committees to play a role in ESG oversight in addition to the full boards in the future, and that there is an opportunity to ensure that the right discussions take place with the right committees, and that ESG, corporate social responsibility or sustainability committees will become more prevalent.

DB: What is the current level of climate skills on boards, and where does the survey expect they will be in the near future?

KK: Almost half of the survey respondents feel their boards lack climate expertise currently. That gap is expected to narrow significantly in the next three years. Interestingly, only 12% of respondents feel that climate knowledge and expertise is a top area for them to round out their board. So it seems that they expect existing board members will be able to upskill on climate knowledge.

DB: When it comes to board composition, what are the top drivers? Is it more in the area of subject matter expertise or diversity concerns?

Our survey indicates that industry knowledge and professional background remain top priorities, followed by representation/diversity, especially among boards that feel they have an effective way to conduct self-evaluation. Cultural fit is also quite high on the list. Another concern brought up in our survey is overboarding. In this day and age, directors are spending more time than ever with their boards. So there's more focus on making sure that appointed directors have the capacity to fulfill their duties.

About the Author(s)

Bill Hayes

Bill Hayes is editor in chief of Directors & Boards.


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