Social Governance

Companies Lack Confidence in Delivering ESG Goals, Board Members are Worried

Published on: 4 April 2022 04:51 PM
by KnowESG

According to a recent study conducted by Boston Consulting Group (BCG) and INSEAD Corporate Governance Centre, company directors worldwide are facing mounting pressure to increase their oversight of ESG issues such as climate and diversity, worried a lot now that their businesses will not be able to deliver ESG ambitions.

The survey results are available in the "Directors Can Up Their Game on Environmental, Social and Governance Issues: The BCG-INSEAD Board ESG Pulse Check" report published recently.

David Young, a BCG managing director and senior partner who co-authored the report, said: "Directors have significant scepticism about whether companies they oversee can deliver on ambitious ESG targets. That makes it more critical than ever that boards enhance their governance of ESG issues, focusing on the matters that are truly material and connected to advantage and value creation for the company.”

According to the survey, roughly around 70 per cent of directors said they are moderately or not efficient in incorporating ESG into company strategy and governance. They noted that the board's lack of knowledge, data, and capabilities are the top reasons for not being able to provide ESG oversight. Meanwhile, 47 per cent said their board has enough ESG competence and experience to fulfil their environmental commitments. Boards have come up with action to address those gaps, including regular updates from an internal executive with responsibility for ESG (48%) and intermittent updates from external experts (40%).

In the survey, 91 per cent of directors said that to align a company's long-term business strategy with ESG challenges, the boards should zero in on improving strategic reflection than screening operations. But only less than half of that 91 per cent felt they were efficient at driving such strategy.

Ron Soonieus, a senior BCG advisor, director in residence at the INSEAD Corporate Governance Centre, and a co-author of the report, said: "Boards must move from a compliance mindset when it comes to ESG to bringing a true strategic lens to those issues. However, many have not yet remade the board agenda to make time for that critical strategic thinking.”

Among those companies that have set a net-zero commitment, only 55 per cent of directors said that their company has prepared and published a plan for hitting that target.

Sonia Tatar, executive director of the INSEAD Corporate Governance Centre and a co-0author of the report, said: "More and more companies are making net-zero commitments. And directors have a critical part to play in ensuring those pledges come with concrete plans and execution as they steward businesses for a sustainable economic performance that drives the greater good for society and the environment."