With ESG gaining most of its momentum relatively recently, it’s not too surprising that the executive careers of many directors didn’t include a strong focus on sustainable operations metrics. Now, though, there’s a risk that investors could start to view that as a skill gap. Here’s an excerpt from an NYU Stern study published last week that’s making the rounds:
NYU Stern’s Center for Sustainable Business undertook a deeper dive and analyzed the individual credentials of the 1188 Fortune 100 board directors based on Bloomberg and company bios in 2019 (see box 1 on methodology),and found that 29% of (1188) directors had relevant ESG credentials. 29% seems like a decent showing, until we drill deeper and find that most of the experience is under the S; 21% of board members have relevant S experience, against 6% each for E and G (numbers are higher than 29% as some members had more than one credential).
The “S” credentials were clustered around workplace diversity (5%) and healthcare issues (generally through board memberships with medical facilities).
An issue of growing materiality, cyber/telecom security, had just eight board members with expertise. There were very few directors who had experience with ethics, transparency, corruption, and other material good governance issues. The third largest category across E, S & G and the largest in the G category was accounting oversight (G) at 2.6%. U.S. boards are required to have a least one board member with audit/finance background and most boards have at least two with that background. However, we only included board members with exhibited leadership in this area, such as being a trustee of the International Financial Reporting Standards Board or a member of the Federal Accounting Standards Advisory Board. The second largest area of expertise (1.0%) under the G was experience with regulatory bodies such the SEC or FCC.
Two areas of material importance to most companies and to investors, climate and water, had just five and two board members with relevant experience, respectively, across all1188 Fortune 100 board members. In general, there is very little director expertise for the “E,” with all nine categories at approximately 1%.
The study has shocking numbers but loses some credibility due to the way it’s measuring “relevant credentials” – as noted in a Cooley blog. But the fact that the data is out there – and investors’ growing interest in disclosure about the board’s role in ESG oversight – does suggest that there could be a benefit to examining and enhancing board sustainability credentials (through education and/or recruitment), and tying skills disclosure to “ESG” experience.
-Liz Dunshee, TheCorporateCounsel.net January 29, 2021
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