Are private company directors missing an opportunity to add value through ESG oversight?

As private capital markets surge, there is growing investor interest and regulatory scrutiny into how private companies are approaching climate change, workplace diversity and a variety of other environmental, social and governance (ESG) issues.

Yet a recent KPMG Board Leadership Center survey found that only about half of portfolio company directors understand their company’s ESG priorities.

“This shifting business environment will require portfolio company directors to reassess the importance of ESG issues to company performance and consider how ESG risks and opportunities are overseen in their boardrooms,” said Ari Weinberg, Director, KPMG Board Leadership Center.

Key takeaways from our report ESG and the portfolio company board include:

Portfolio company directors rate ESG issues — including environmental risk and opportunity, workplace diversity and ESG-related disclosures — significantly below the importance of the board’s oversight of strategy, talent and corporate governance.
Some ESG topics are not dedicated board agenda items. Many directors say that ESG issues such as climate change and its impact on the business, as well as diversity, equity and inclusion should be added to the board’s agenda.
To help the board get a better handle on a company’s ESG risks and opportunities, directors cite the need for more frequent updates from management, board-level training and enrichment, and clarification of the board’s own priorities. They also said deeper dives on specific issues, competitive benchmarking and employee surveys would be helpful.

The survey results suggest that private portfolio company boards are focused on corporate culture, a critical component of the ESG conversation. Ninety-five percent of respondents said that culture is currently on their board’s radar.

“Deeper inquiry into culture — what drives employees, how they feel about products and services, whether transparency is encouraged — can help the board probe latent ESG matters and how they impact the company,” said Weinberg.