There’s a disconnect between the C-suite and the boardroom when it comes to prioritizing sustainability and ESG goals. Nine in 10 chief executives say they are focused on ESG issues, and nearly half are taking a leading role in assessing them. Yet many CEOs aren’t getting much help from their boards, according to a 2021 New York University study of Fortune 100 board directors.
The NYU study found that less than a third of board members had any relevant ESG expertise. For example, despite experiencing $100 billion in extreme weather-related damage in one year, the study found that a well-known property and casualty insurer had no environmental expertise on its board of directors.
Companies need to close such gaps if they want to build trust with investors and employees, to boost corporate performance, and to address the reality of climate change, says the study’s lead author, NYU Stern Center for Sustainable Business director and professor Tensie Whelan. In a recent interview, Whelan explained what boards need to do to meet the challenge. This interview has been edited for clarity and length.
There are plenty of qualified people out there with ESG experience to sit on boards; it’s just that typically boards look for sustainability-officer types when they should be thinking about a broader set of skills in the environment and governance. With ESG, you can’t just have a single-issue person for your board; you need more “E” and “G” experts, not just “S.” There are plenty of people available out there who can think big-picture strategically for the business but also bring ESG experience to the fore.
Boards need to run ESG issues across every committee. ESG should be part of compensation and it should also be in auditing, strategy, and nominating. Without that, there really isn’t enough time in board meetings to dig in and make a difference.
Absolutely. The research shows that sustainability drives operational efficiencies. It drives customer loyalty and sales. It improves supplier resiliency, which is more and more important these days. It also drives innovation and risk mitigation. There’s a whole series of benefits, some of which are intangibles, that you can monetize. It really depends on execution.
It has to be done with stakeholders, the board, and partners in your sector in mind. The board’s role is critical because it needs to emphasize to management that this is not just another reporting exercise, but truly strategic.
To do this well, boards need to understand a few key questions: What are your material risks? What are your material opportunities? How are you building those into business strategy? What are the KPIs that you can manage against? And how are you going to be reporting credibly to third parties who care about this?
Companies also need to recruit partners in other sectors for every aspect of ESG challenges. They need to work with environmental, social, and compliance NGOs to develop good standards, with local NGOs, and with academics who all understand the root challenges.
Right now, many are simply reacting to an explosion of investor interest in ESG, but simply reacting to pressure from any single group is problematic. Instead, you have to listen to each constituency, find out what they think is important, and then determine your own strategy. Identify what you want to work on and then engage with everyone else.