Related Expertise: Social Impact, Climate Change and Sustainability, Business Model Innovation
How well are boards positioned to provide oversight of ESG? BCG and the INSEAD Corporate Governance Centre have teamed up on a multiyear initiative, including regular pulse check surveys and interviews, to help answer that question. We will assess how boards are engaging with ESG issues today and to what extent existing board practices can deal with these complex and systemic challenges. For this inaugural report, we have interviewed more than 50 directors who have at least 10 years’ experience as a board member and who serve on more than 150 corporate boards combined. Our survey captured insights from 122 respondents who have an average of 7 years of experience as a board member and who are affiliated with 2 boards on average.
Our initial survey and interviews reveal a number of insights:
Roughly 70% of directors reported that they are only moderately or not at all effective at integrating ESG into company strategy and governance.
Although directors think their boards should devote more time to strategic reflection when it comes to ESG issues, more than half (53%) said they are not effective at doing that.
Boards clearly see addressing climate change as a top priority; still, among companies with a net-zero commitment, only 55% of directors reported that their organizations have prepared and published a plan for hitting that target.
A full 43% of directors cited the ability of their companies to execute as one of the biggest threats to delivering on ESG goals.
Certainly, there is no simple solution for boards when it comes to understanding, overseeing, and engaging with management on ESG issues. The topics that are material will vary by industry and are themselves dynamic by nature. And a board’s actions will also depend in part on the company’s maturity level with respect to ESG management.
But there is no question that directors must up their game in this area. The capacity and effectiveness of the board when it comes to ESG is vitally important for companies aiming to improve the sustainability of their operations. After all, while corporate management is under constant pressure to deliver strong financial performance over the short and medium term, board members play a critical role in steering companies over the long term. And the ESG issues confronting companies today—including climate, income inequality, diversity, equity, and inclusion, and geopolitical tensions, most recently the war in Ukraine—will require sustained, long-term action. Consequently, such matters sit squarely in the purview of the board.
To fully meet the new demands stemming from ESG, boards must pay attention to three critical areas:
Boards that take thoughtful action in all three areas can expand and enhance their focus on ESG. In doing so, they ultimately help the companies they oversee build sustainable business models—and sustained value creation.