In this webinar we presented the key findings of this years’ report looking at the world’s largest companies and their boards’ approach to sustainability governance.
We provided insights into the ongoing transformation of boards, with a special focus on climate governance.
Agenda:
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Introduction of the Annual ESG Preparedness report and notable data points
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Chapter Zero's approach to sustainability and climate governance
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Panel discussion - What are challenges of sustainability governance and how can we improve?
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Q&A
Duration: 45 minutes
Moderator:
Carolynn Chalmers, CEO of The Good Governance Academy, The ESG Exchange, Chapter Zero Southern Africa
Panelists:
Susan Hooper, Founding Director of Chapter Zero, Experienced Senior Board Member and Chair
Frederik Otto, Executive Director, The Sustainability Board
Watch the Recording from November 29th, 2023
Launch Webinar
2023 Annual ESG Preparedness Report
The Sustainability Board
Leadership Foreword
Frederik Otto
Executive Director
Jeannette Lichner
Senior Advisor
Our 5 Key Findings
Sustainability Governance is increasing ‘On Paper’
Global
88%
up from 80% in 2022
of companies with relevant committees
USA
95%
of companies with relevant committees
Global
32%
up from 27% in 2022
of directors are members of a relevant committee
USA
34%
of directors are members of a relevant committee
In 2019, just over half of the businesses had a board policy for ESG oversight. This number increased to 88% globally in 2023, and almost all US companies onboard except for five.
ESG oversight is primarily measured by the presence of a board committee that addresses environmental, social, and governance (ESG) issues in its charter. We also source some of this information from proxy reports, corporate governance guidelines, and annual reports. It is important to note that we often see dramatic differences in disclosure between these documents. That means that a somewhat comprehensive approach to governance stipulated in the sustainability report might not translate into the relevant committee charter, or other documents or vice versa.
Further, we see a trend toward more participation of the whole board in relevant committees. Statistically almost every 3rd director is specifically part of sustainability oversight, up from slightly above every 4th in 2022.
ESG Engagement of Directors stagnates
Global
43%
down from 45% in 2022
of directors sitting on relevant committees are ESG-engaged
USA
41%
of directors sitting on relevant committees are ESG-engaged
Global
46%
of relevant committee chairs are ESG-engaged
USA
43%
of relevant committee chairs are ESG-engaged
Another crucial metric is the ESG engagement of directors responsible for oversight. These directors either have memberships in relevant committees and display sustainability knowledge (ESG consciousness) or have the capability for effective action (ESG competence). From 2019 to 2022, ESG engagement levels of directors rose dramatically from 16% to 45%. Yet, our current data shows a global decline to 43%, with the US at 41%. This suggests a possible stagnation, and future studies will determine if we are approaching a concerning 'engagement ceiling' where fewer than half of directors engage in sustainability governance.
Additionally, this year we have assessed the ESG engagement of committee chairs for the first time. The findings indicate that their engagement levels are akin to the rest of the directors on relevant committees. Globally, 46% of committee chairs are ESG engaged, compared to 43% in the US. It's worth noting that one might expect directors chairing the committees responsible for ESG oversight to be particularly engaged.
Women remain at the Forefront of Sustainability Governance
Global
Overall, female directors are
64%
more likely to be ESG-engaged
up from 60% in 2022
USA
Overall, female directors are
50%
more likely to be ESG-engaged
Global
Female directors are
13%
more likely to be a member of a relevant committee
down from 24% in 2022
USA
Female directors are
22%
more likely to be a member of a relevant committee
Global
35%
down from 37% in 2022
of directors on relevant committees are women
USA
39%
of directors on relevant committees are women
Global
32%
unchanged
of all directors are women
USA
34%
of all directors are women
Our third major data point focuses on female board directors and their role in driving ESG engagement. While the difference is decreasing, with women now 13% more likely than last year's 24% to be part of a relevant committee, they are still 64% more likely to be ESG engaged than their male counterparts. This is a slight increase from 60% the previous year. In the US, the engagement level for women is 50%.
Women constitute 35% of all directors on pertinent committees globally and 39% in the US. These percentages are marginally above the global gender diversity average on boards, which is 32% globally and 34% for the US.
Sustainable Management experience remains the main driver for ESG engagement
The engagement of directors with ESG criteria is evaluated using a checklist, which assesses them based on three distinct criteria (see page 26). A director is considered ESG-engaged if they meet at least one of these criteria.
85% of directors worldwide and 88% in the US qualify as ESG-engaged due to their corporate experience in sustainability strategy. This engagement largely stems from their roles as either a current or retired CEO.
We also look at whether the director is a member of a relevant non-profit organisation dedicated to industry specific sustainability issues.
The share of directors who satisfy this criterion has declined from 58% in 2022 to 53% in 2023 and is at 47% in the US.
The criterion with the least representation is formal certifications or credentials, with only 7% of directors meeting it. Not much progress has been made over the last 3 years in this area (also see page 20). Within this category, we also include lecturers, professors, and other faculty members who teach sustainability topics. Interestingly, these educators outnumber the individuals who possess formal certifications or credentials in the field.
Business Experience
Executive or board experience actively involved in sustainability strategy or governance
Non-Business Experience
Board member of a business material non-profit organisation, foundation, or charity, or fellowship of an international campaign body
Education & Thought Leaders
Formal ESG/sustainability certification/accreditation or published paper, research, book, or report in the area, or teaching capacity
Most Boards, and notably US Boards, are embracing ESG in their Committee Charters
We assess the presence of board ESG policy through the presence of a relevant board committee that stipulates ESG issues in its committee charter, proxy, corporate governance, or annual report.
So long as sustainability oversight is clearly stipulated in their policies these are referred to as ’relevant committees’.
We then screen the policy (mostly committee charters) for narrative. There are four options: Health & Safety: Primarily focused on technical labour safety. CSR (Corporate Social Responsibility): Mainly focuses on employee well-being in a corporate setting. Sustainability in General: Does not exclusively detail ESG factors. ESG (Environmental, Social, Governance): Abbreviated or fully spelled out.
Narrative of Relevant Committee’s Charter
There is a rise in stipulating ESG specifically in committee charters increasing from 34% to 41% globally. Interestingly, almost half of all US boards in our sample have an ESG narrative in their relevant committee charters, despite the current political pushback on the practice.
Committees tasked with Sustainability Oversight
In the US, 51% of committees were specifically dedicated to sustainability oversight in 2023. Globally, the figure is higher at 63%, but lower compared to 2022 at 69%.
Shared committees are represented by 36% in 2023 globally compared to 29% in 2022. In contrast, in the US, these committees accounted for a significantly higher 48%.
Our 3-Step Recommendations
The implementation of a solid sustainability strategy, informed by the principles of ESG (environmental, social and governance) is a leading concern with most boards.
Boards need to be able to identify, assess and monitor all that the strategy will impact, considering a short- and long-term perspective.
We recommend the following approach to structure an informed and cogent approach to sustainability governance:
