Environmental, social and governance (ESG) issues – particularly climate risk, the focus on stakeholders and the spotlight on leadership – were key themes in our most recent director pulse survey.
The survey results offer important insights for board members and business leaders.
“These findings can spark robust discussions and questions in the board room about long-held assumptions and the need to think more holistically about the company’s future,” said John Rodi, Leader for the Board Leadership Center. “ESG topics increasingly continue to draw the attention of investors, and businesses are evolving their strategies to address racial and gender diversity, climate change and carbon emissions, as well as corporate decision and policymaking.”
Notably, only one-third of directors expressed confidence that their management team understands the implications of climate change for the business, and 29 percent said that “addressing climate change” will be of strategic importance to the company in 2021. These findings appear to fall short of investor expectations for companies. For example, in BlackRock’s 2021 letter to CEOs, Larry Fink wrote: “No issue ranks higher than climate change on our clients’ lists of priorities.”
At the same time, 81 percent of survey respondents said their company’s incentive structure encourages management, to some degree, to maximize short-term returns at expense of long-term returns. CEOs and lead directors should consider two key questions: How does our incentive structure and culture drive ESG performance? How effectively are we assessing and disclosing the company’s ESG performance?
The survey results make clear that the pressure on CEOs and corporate leadership to focus on ESG issues is intensifying.
Eighty percent of directors reported that, given the events of the past year, their board has intensified its focus on the CEO and senior leaders, including succession plans. The vast majority of directors said that CEOs have a responsibility to take a stand on diversity, equity, and inclusion (DEI) and other societal issues. Yet, only 8 percent said that corporate America is making a “strong follow-through” on its DEI and societal commitments. Boards play an important role in helping to ensure there is strong follow through on these commitments. Is the company using its resources, influence, and capabilities to not only talk the talk, but to walk the walk?
Reviewing these findings can help the board—and the company—widen its aperture, question long-held assumptions, and think more holistically about the company’s future.