Are Boards of Directors prepared for ESG integration?

This week I want to discuss a topic that I think is fundamental for companies to keep advancing their ESG journey in the future: are Boards of Directors prepared for ESG integration?

A study from NYU’s Center for Sustainable Business at Stern published earlier this year argues that many boards are not prepared to face the ESG issues which are creating risks and opportunities for their businesses. Below some interesting findings from their report:

1. Only 38% of board members think ESG issues have a financial impact on the company (PWC 2020).
2. Six in 10 directors now believe that environmental/sustainability expertise is important for a board (PWC 2020).
3. In 2018 CERES reviewed the board credentials of the top 475 of the Fortune 2000 companies and found that most board members do not have demonstrable sustainability credentials (only 17% qualified).
4. NYU Stern’s Center for Sustainable Business analyzed the individual credentials of the 1,188 Fortune 100 board directors and found that:
   1. 29% had relevant ESG credentials.
   2. 21% had relevant S credentials.
   3. 6% had relevant E credentials.
   4. 6% had relevant G credentials.
   5. S credentials were clustered around health and diversity issues.
   6. Many companies with material ESG issues had little relevant expertise on their boards.
   7. Some material S topics (like human rights, human resource development, benefits, and safety) had negligible board member representation.
   8. There were very few directors who had experience with ethics, transparency, or corruption.
   9. Climate and water had just five and two board members with relevant experience.

The data clearly shows that there are important gaps in the US’s boards in terms of sustainability knowledge. It is probably unsurprising since the sustainability movement has gained strength more recently, and we will probably see a shift towards this in the future.

Now if we move the analysis to Mexico, looking at the boards of the IPC’s constituents, how does this look like? Based on the bios provided by the companies in their websites and reports, around 20% of the directors on these boards have some sort of ESG experience. Most of it focused on social topics (similar to the US) as many of them head or have had important roles in different charities. We notice a lack of experience in environmental topics (notably, very little data on experience related to climate change strategies).

As more companies give more weight to their ESG strategies, and ESG disclosure becomes an even bigger topic than it already is, we would expect to see demand for board member with relevant ESG experience (and companies would be wise to balance it amongst all 3 ESG pillars). We would also recommend ESG training for current boards, so even existing board members understand the most relevant sustainability topics. And finally, while clearly not to the same extent as with gender, board experience or lack thereof in ESG is still quite easy to find out. Thus, to the extent board members have such experience, we would highlight this in their bios.

I hope you found this interesting. As usual, if there is anything we can help you with, please reach out.

Best,

Marimar

CEO, Miranda ESG