One topic that directors were asked about in the PwC 2020 Annual Corporate Directors Survey was ESG. Although 55% of directors surveyed considered ESG issues to be a part of the board’s enterprise risk management discussions, 49% saw a link between ESG issues and the company’s strategy and 51% recognized that ESG issues were important to shareholders, directors were “not convinced that they’re connected to the company’s bottom line. Only 38% of directors say ESG issues have a financial impact on the company’s performance—down from 49% in 2019.” And only 32% thought that the board needed more reporting on ESG-related measures. Notably, 51% thought that their boards had “a strong understanding of ESG issues impacting the company.” As you may discern from its title, this study from the NYU Stern Center for Sustainable Business, U.S. Corporate Boards Suffer From Inadequate Expertise in Financially Material ESG Matters, begs to differ.
According to Protiviti, in 2019, 90% of companies in the S&P 500 issued separate sustainability reports—not part of SEC filings—and, as of February 2020, over 1,000 companies with an aggregate market cap of $12 trillion have endorsed the Task Force on Climate-related Financial Disclosures (TCFD) recommendations for sustainability disclosure (see this PubCo post and this PubCo post). Similarly, use of the Sustainability Accounting Standards Board (SASB) framework has increased by 180% over the last two years (see this PubCo post). With this heightened focus on sustainability, how can boards best oversee ESG? To that end, in this article, consultant Protiviti offers ten questions about ESG reporting that boards should consider with their management teams.
It’s not just BlackRock’s CEO that has words for companies. Cyrus Taraporevala, the CEO of State Street Global Advisers, another large asset manager, has recently sent his own letter to company boards cautioning that SSGA’s engagement on sustainability this year will also include the possibility of a proxy vote against directors “to press companies that are falling behind and failing to engage.” While directors can play a vital role in catalyzing action on ESG matters, SSGA recognizes that, in many ways, our understanding of ESG is still in its early stages, making board oversight of ESG something of a challenge. To help demystify sustainability for directors, SSGA has developed a framework intended to provide a roadmap for boards—where to begin—in conducting oversight of sustainability as a strategic and operational issue.