With regulators in the U.S. and around the world looking hard at the possibility of imposing sustainability disclosure requirements, and investors and other stakeholders continuing to focus on sustainability in their engagements with companies—according to a PwC survey, "ESG is the topic investors most want to discuss during engagements with shareholders"—one question that arises is just what corporate boards are doing to deal with sustainability—what are their attitudes and commitments? Are they even prepared to address sustainability issues? In an article reporting on a 2022 survey by consulting firm Russell Reynolds (published on the Harvard Law School Forum on Corporate Governance), the firm tried to answer these questions. One conclusion from the survey: "Rather than having a sole 'ESG director' or 'sustainability director,' expectations are increasing for the entire board to bring a minimum level of sustainability awareness—if not expertise—to their work, using it to identify both risks and new opportunities for value creation."

In the survey, RR received responses from over 1,100 directors in 41 countries; 44% of respondents' companies had annual revenue over $1 billion. The survey show that 73% of boards discussed sustainability strategy at least once each year, and that included about 5% that discussed it at every meeting and between 15% and 20% that discussed it at almost every meeting. Under 10% said that they did not review sustainability strategy. Sustainability disclosure was discussed at least annually by about the same percentage of directors, including almost 15% that discussed it at every meeting or almost every meeting.


In PwC's 2022 pulse survey, 70% of directors said that "ESG and sustainability will be integral to longer-term planning at the end of 2022 (compared to 60% of all executives)." PwC's 2021 Annual Corporate Directors Survey reported a "real shift in how boards are thinking about and addressing ESG. Most importantly, more boards are linking ESG to company strategy. Almost two-thirds of directors (64%) now say their strategy is tied to ESG issues—a 15-point jump since last year, and a strong indicator of how quickly things are changing. Directors are also more likely to say that ESG is a part of risk management discussions (62%, up from 55% in 2020). More than half of directors (54%) now believe that ESG issues have a financial impact on company performance." In addition, directors reported that "ESG is the topic investors most want to discuss during engagements with shareholders." With regard to anticipated SEC mandatory reporting, only 18% of directors favored mandatory disclosure requirements, while 67% favored voluntary reporting. Ninety-four percent said their companies were already providing some voluntary disclosure. Interestingly, PwC reports that women directors are "much more concerned with the climate crisis" (87% female directors to 67% male directors) and twice as likely to support mandatory ESG disclosure.

When asked to characterize their boards' attitudes toward sustainability, 65% responded that they had a "genuine commitment to make real progress and a willingness to invest time and money to get there." Seven percent responded that there is "a great deal of talk, but a lack of willingness to take responsibility," and only 5% said their boards were "more focused on appearing to act on sustainability than taking real action." Fourteen percent said that it was not a board issue and 1% were "openly dismissive of environmental issues."


In this article from last month, BlackRock's managing director of investment stewardship, while acknowledging that the issue is still open in the U.S., expressed BlackRock's views: "there is still a debate in board circles about whether sustainability even does rest in the boardroom or whether it's solely a management issue. Our view is if it's a significant or a material driver of value or risk, then it rests in the boardroom."

RR contends that board commitment is "critical to meeting evolving sustainability disclosure and performance requirements," especially commitments to achieve Net Zero targets. Only 32% of respondents said that their boards had even set a Net Zero target date and only 27% expected to be able to achieve that target; that means that 68% had not set a target. However, 20% expected to set a target within the next six months.

As noted above, RR suggests that investors tend to prefer that all directors have "a minimum level of sustainability awareness" across the board, rather than relying on a single director with technical ESG expertise. Not surprisingly, only 6% of respondents said that all directors on their boards "have the skills and experiences necessary to address the sustainability issues" in their businesses. Still, directors were apparently confident that, collectively, their boards had adequate sustainability expertise—a view not quite shared by boards in some other surveys (see the SideBar below). In the survey, 58% of respondents said that a majority of the directors on their boards did have the necessary skills and experience. But RR questioned whether that relatively high percentage was "perception or reality. Corporate governance analysts have reported a lower-than-desired level of directors with sustainability qualifications or relevant experience on major boards today. But, to the extent that skill or capability gap exists, it may be closing: Our recent research with nominations and governance committee chairs found that 63% say sustainability is now a critical leadership competency for prospective directors, and the majority surveyed said that the competency is more important now than ever before."


By comparison, a report from audit firm Deloitte surveying 353 audit committee members globally (56% of whom were chairs) in September 2021 asked how prepared audit committees were to address climate issues. The answer? Not so much. According to Deloitte's report, 42% of respondents indicated that their company's "climate response is not as swift and robust as they would like" and almost half "do not believe that they are well-equipped to fulfil their climate regulatory responsibilities." Deloitte called the responses "sobering." When asked in the survey whether the audit committee was "climate literate," about 50% in the Americas said no (but that does include 7% that had at least one member who carried the load for the committee); only 14% said they all have training or experience. One audit chair commented in the report, echoing the view of RR above, that he did "not believe that it is simply a matter of placing specialists in the audit committee. Instead, we need to have committee members who have an open eye for what is happening around us and in society." It was also about 50-50 in response to the question of whether committee members believed that their companies were "addressing the climate challenge as swiftly and robustly as you would like." And only 46% in the Americas said that they believed their committee had "the information, capabilities, and mandate to fulfill its regulatory responsibilities in relation to climate risks and carbon reduction targets" at their companies. (See this PubCo post.)

When asked in PwC's 2021 Annual Corporate Directors Survey about their boards' understanding of various oversight matters, ESG ranked lowest: only 25% of directors say their boards understand ESG risks very well.

And the title of this study from the NYU Stern Center for Sustainable Business, U.S. Corporate Boards Suffer From Inadequate Expertise in Financially Material ESG Matters, gives away its conclusion. The Stern Center analyzed the credentials of the 1188 Fortune 100 board directors, based on company bios and Bloomberg bios. The study "found that very few sectors and very few companies were adequately prepared at the board level for issues that were already affecting their performance." While on an initial examination, the study found that 29% of those directors had relevant ESG credentials, on a deeper dive, the Center found that 21% of the directors' experience was in the "social" category—clustered around health and diversity issues—but in each of "environment" and "governance," only 6% of directors had relevant credentials. As it turned out, the absence of board expertise was often in an area of ESG that could be considered critical to that business; for example, the study cited a property and casualty insurance company that had "no environmental expertise on the board in a year experiencing $100 billion in damage caused by climate change-heightened extreme weather events." According to the study, "without board members who have a strategic understanding of the issues, the board will not know the questions to ask or even understand that the potential risks might exist." What to do? As reported in Bloomberg, the Center's director recommended that boards "have to first understand and pinpoint ESG risks, prioritize them and then bring on the expertise." Expertise does not necessarily mean climate change scientists or cyber security technicians, but rather, consistent with RR, board members who have a strategic understanding of the issues. Board refreshment may help: the study makes the observation that "[m]ost boards have a preponderance of former CEOs sitting on their boards. Those CEOs were in charge 10-20 years ago when ESG issues were not regularly considered as material and they bring that mentality to the boardroom." (See this PubCo post.)

RR advocates ten actions to help boards enhance their engagement with and oversight of sustainability:

  1. "Proactively engage with external stakeholders about sustainability to ensure you understand their priorities and concerns
  2. Embed sustainability into all discussions with the CEO and executive team
  3. Establish a purpose-driven culture at all levels that looks at issues through a sustainability lens
  4. Educate directors on sustainability
  5. Apply a sustainability lens to corporate strategy decision-making
  6. Identify key material factors based on the business, setting goals and establishing clear metrics for tracking progress toward them
  7. Structure the board to engage meaningfully on sustainability
  8. Change compensation models to account for sustainability targets
  9. Prioritize a sustainability mindset when hiring directors
  10. Prioritize a sustainability mindset when hiring CEOs"

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