Despite the growing awareness of and focus on environmental, social and governance (ESG) issues in board rooms, a new global report by Heidrick & Struggles, INSEAD and BCG, found that most directors don’t believe sustainability is linked to a company’s financial performance today and nearly half of the respondents do not consider ESG-related experience as a needed competency for their board selection. The survey was conducted globally and saw very few differences across regions and sectors.
Boards act on sustainability issues due to societal expectations or compliance, but not because of financial performance. 68% of board members surveyed said that sustainability considerations have "no effect" or a "slight effect" on financial performance today. However, 52% take actions on sustainability because it's the 'right thing to do', with a similar number (51%) citing legislative requirements.
Only 29% of board members reported they had sufficient knowledge to effectively challenge management on sustainability plans and ambitions and exercise oversight on their execution. Despite this, 79% said their board had a very clear understanding of the strategic opportunities and risks sustainability presents.
Balancing limited time and resources to prioritize ESG is difficult. Sustainability considerations have been fully integrated into business strategy today at 38% of companies and 48% considered that knowledge or experience with sustainability is either "not at all" or just "slightly" part of the competency matrix for their board selection. When asked what was preventing them from spending meaningful time on sustainability planning, more than 72% cited the need to devote time to non-sustainability-related, high-priority topics.
Today, most of the companies surveyed act on ESG to remain in compliance and avoid risk. Ron Soonieus, a Senior Advisor at BCG, pointed out, "While the new rules and regulations serve a clear purpose, compliance does not guarantee the long-term success of the company. Boards struggle to see that, and a fair share believe that if they comply, sustainability is covered. Boards have a key role to play in ensuring sufficient weight is put on making sustainability an integral part of the long-term strategy, and to start seeing it as a source of competitive advantage."
