The list of environmental, social, and governance (ESG) issues that can pose financial risks to corporations exploded in 2020: climate change, water scarcity, pollution, #metoo, #blacklivesmatter, worker welfare, employee diversity, corruption, human rights abuses, supply chain scandals…not to mention Covid-19. Yet while many investors and chief executives now take ESG seriously in their decision making, one powerful constituency is lagging: corporate boards.
Boards Are Obstructing ESG — at Their Own Peril
Asset owners, asset managers and even many chief executives now consider ESG issues essential for financial performance. But corporate directors are lagging. PWC’s 2020 Annual Corporate Directors Survey found that only 38% of board members think ESG issues have a financial impact on a company. A main part of the problem is that boards lack ESG expertise, according a new study by the authors. The authors recommend several remedies to bring boards along with the ESG revolution: recruit directors with ESG experience; require the board to identify material ESG issues; board members should require executives to o report on the financial impact of their ESG investments, including intangible and tangible benefits such as risk avoidance, employee retention and operational efficiency as per models such as the NYU Stern Center for Sustainable Business Return on Sustainability Investment (ROSI) methodology.