Sustainability has become a major focus of companies around the world—because of consumer expectations, of course, but also as a business strategy to build stakeholder trust that will strengthen resilience. But to the latter point, new research from leadership consultancies Diligent Institute and Spencer Stuart shows that nearly half (45 percent) of corporate directors globally say they need greater insight into how their company’s sustainability goals actually link to corporate strategy.
The firms’ second annual Sustainability in the Spotlight report, based on a survey of nearly 1,000 corporate directors globally, also notes that this call for clarity on what environmental, social and corporate governance (ESG) means for the business comes amid heightened disclosure expectations and requirements, with 60 percent of directors taking action to ensure their ESG strategy is reflected in annual reports, and 53 percent enhancing ESG disclosures.
Despite ongoing strategy challenges, the report reveals that most companies globally view ESG in terms of opportunity than risk—but there is a geographical divide, as European companies were found to be more likely to view ESG as an opportunity compared to their U.S. counterparts (56 percent compared to 30 percent). In fact, U.S. companies are more likely to view ESG as a risk than European companies (34 percent compared to 13 percent).
“Whether you treat ESG as a risk or opportunity, or both, successful organizations need to understand their data to ensure they are staying compliant with disclosure requirements and meeting the expectations of shareholders and stakeholders,” said Lisa Edwards, executive chair of Diligent Institute, in a news release. “These findings suggest that boards are taking sustainability seriously, and looking for greater clarity into how it factors into their overall corporate strategy.”
Other findings from the report include:
The biggest obstacles to ESG progress center on strategy
- 22 percent of directors indicate competing business or strategic topics on the board agenda, and the same amount report a lack of clarity for what ESG means to the business.
- Only 2 percent of directors identify public backlash against ESG as being one of the largest obstacles to ESG strategy and implementation.
Many organizations report plans to strengthen their focus on ESG in the next 5 years
- 90 percent of organizations have incorporated environmental goals or metrics into their business, and 87 percent have done the same for social goals/metrics.
- 29 percent predict a more concerted effort on ESG initiatives in the next five years, and 18 percent predict stronger linkage between ESG initiatives and business impact.
ESG is a global issue, but European boards are more engaged and optimistic about ESG issues than those in the U.S.
- 63 percent of European boards evaluate progress on ESG goals and strategies on a quarterly basis or more, compared to 44 percent of U.S. boards. Additionally, 34 percent of European boards feel ESG metrics led to better performance of their stock, compared to just 15 percent of U.S. boards.
- In the U.S., only 25 percent of directors believe their organizations have effective leadership and high ambition across both environmental and social issues, compared to 50 percent of directors in Europe.
The boardroom has heightened focus and energy on reporting
- 60 percent are taking extra care to ensure that their ESG strategy is adequately reflected in annual reports/filings.
- 53 percent of directors say their organizations are enhancing current ESG disclosures.
“Our survey shows that many boards have made great strides in formalizing their approach to sustainability by defining oversight responsibilities and establishing sustainability metrics in many parts of the business,” said Jason Baumgarten, head of Spencer Stuart’s global CEO and Board Practice and the firm’s sustainability initiatives, in the release. “Companies that go further and rigorously define sustainability strategies that link to their business model have the opportunity to unlock tremendous value and unleash the next wave of growth.”
Diligent Institute and Spencer Stuart surveyed 992 board members from April 13 to May 3, 2023, spanning public/listed, pre-IPO and other private companies across industries. U.S.-based companies account for 44% of the respondents, 34% represent companies based in the European Union or the U.K., and the remainder represent companies based elsewhere across the globe.