A third of corporate boards lack strong understanding of key ESG issues, says survey

October 21, 2022

More than a third of company bosses do not have a good understanding of key ESG areas - including climate change - according to a new survey of 704 directors.

Too many lack a strong grasp of associated risks or a clear understanding of their company’s strategy, according to the 2022 Annual Corporate Directors Survey by PricewaterhouseCoopers (PWC).

They quizzed directors working in over a dozen industries, and the majority represented firms with annual revenues over $1 billion, and have served on their boards for more than five years.

The key findings in relation to ESG were mixed.

Read Minerva's previous coverage of board-related issues:

https://www.old.manifest.co.uk/eu-lawmakers-outline-new-board-diversity-regulations/

Most were confident of their board’s performance in traditional areas of oversight, with 92% happy they had a good understanding of talent and corporate culture.

And 90% are sure their boards have a decent grasp of their company’s diversity and inclusion efforts, and data privacy and cybersecurity policies and practices.

But the directors were much less confident about emerging areas like climate risk and related regulations.

Less than two-thirds of respondents said their board understands their firm’s climate risk/strategy or the internal processes and controls around data collection.

And nearly half (44%) do not fully understand the company’s approach to carbon emissions.

The report also concluded that while ESG is working its way into key risk management practices, board discussions rarely include other pressing areas such as human rights.

And despite an increasing focus on ESG risk, only 27% felt their boards understand these risks “very well”.

The study also found a significant divergence on ESG focus between larger and smaller companies.

While 72% of directors at firms with annual revenues over $10 billion reported having had board discussions on climate change over the past 12 months, only 27% at companies with under $1 billion revenues made similar claims.

And while 73% of large-company directors said that ESG has been linked to company strategy, only 40% of small-company directors said that their boards had done so.

The survey also suggested the current economic downturn could cause investors to lose focus on key ESG topics like carbon emissions and climate change, and instead increase attention on areas including capital allocation, short-term stock performance, and executive compensation.