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Management

Board Members Worry That Companies Won’t Deliver on Environmental, Social, And Governance Goals

More than 40% of directors surveyed cite the ability of companies to execute as one of the biggest threats to improving ESG performance

Published: Wednesday, May 11, 2022 - 12:00

(Boston Consulting Group, INSEAD: Europe, Asia, Middle East, Americas) -- Directors around the world, facing significant pressure to increase their oversight of ESG issues including climate and diversity, are concerned that their companies will not be able to execute on their ESG ambitions, according to a survey by Boston Consulting Group (BCG) and the INSEAD Corporate Governance Centre.

The results of the survey are detailed in a report, titled “Directors Can Up Their Game on Environmental, Social and Governance Issues: The BCG-INSEAD Board ESG Pulse Check.”

“Directors have significant skepticism about whether companies they oversee can deliver on ambitious ESG targets,” notes David Young, a BCG managing director and senior partner who co-authored the report. “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.”

A capabilities gap

In addition to board concern about the overall ability of companies to execute, the survey found that roughly 70 percent of directors reported they are only moderately—or not at all—effective at integrating ESG into company strategy and governance. Directors identified the board’s lack of knowledge, data, and capabilities as the top barrier to providing effective ESG oversight. And less than half of the directors surveyed—47 percent—believed their board has sufficient ESG competence and experience to challenge management on ESG plans and exercise board oversight on execution. Boards are taking action to address those gaps: The most common approaches to supplementing board knowledge are regular updates from an internal executive with responsibility for ESG (48%) and intermittent updates from external experts (40%).

The survey also revealed challenges related to how boards are using the time they devote to ESG matters. When it comes to aligning a company’s long-term business strategy with ESG challenges, 91 percent of directors said that boards should focus more on improving strategic reflection than on monitoring operations. Still, less than half of that 91 percent felt they are effective at driving such strategic reflection.

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


Climate is the top ESG issue

Climate change is among the top three ESG issues in terms of expected financial impact for all eight industries captured in the survey except one (healthcare), and it holds the No. 1 slot for consumer, industrial goods, energy, and utilities.

Yet, among companies that have set a net-zero commitment, only 55 percent of directors reported that their company has prepared and published a plan for hitting that target. And an even smaller share—43 percent—said their company has published financial statements accounting for the implications of climate change.

“More and more companies are making net zero commitments,” says Sonia Tatar, executive director of the INSEAD Corporate Governance Centre and a co-author of the report. “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 greater good for society and the environment.”

She adds, “The INSEAD Corporate Governance Centre (ICGC) is actively engaged in making distinctive contribution to the knowledge and practice of corporate governance. Our partnerships with key industry experts, and BCG in this report, highlight gaps, and therefore calls for, key improvements that boardrooms and companies can make in terms of ESG knowledge and implementation.” 

A copy of the report can be downloaded here

About Boston Consulting Group

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, it works closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

The company’s diverse, global teams bring deep industry and functional expertise, and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. It works in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping its clients thrive and enabling them to make the world a better place.

About INSEAD

As one of the world’s leading and largest graduate business schools, INSEAD brings together people, cultures, and ideas to develop responsible leaders who transform business and society. INSEAD’s research, teaching, and partnerships reflect this global perspective and cultural diversity.

First published March 30, 2022, on INSEAD Newsroom.

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