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Most directors at the world’s largest publicly held companies oversee environmental and social issues but lack clear expertise in them, according to a May 16 analysis by sustainability advocacy group Ceres and consultant KKS Advisors.
The study found that 62 percent of Forbes 500 company boards monitor sustainability issues via a designated committee, regular reports from management, or both. But only 17 percent of boards have at least one director with demonstrated sustainability expertise or experience in their bios.
Ceres’ Veena Ramani, one of the report’s authors, said ideally boards should have more than one member versed in environmental and social issues, otherwise “they run risk of being pigeon-holed or siloed.” Boards that aren’t what Ceres calls “sustainability competent” were found to lag on corporate sustainability performance.
“Even where companies are formally mandated to engage on these issues, if they don’t have the right people in place to be able to talk about environmental and social issues with some level of fluency, the mandates aren’t going to lead to the results you want,” Ramani, who directs Ceres’ work on corporate governance and sustainability disclosure, told Bloomberg Law.
The research, which was based on company disclosures as of June 2017, showed that boards with stronger sustainability governance systems were more likely to have set goals like cutting carbon emissions, water use, or waste. Companies with such goals tended to score higher on measures of sustainability performance.
Other studies, including one written by KKS Advisors’ co-founder George Serafeim, have shown companies that are strong performers on sustainability also typically outperform their competitors financially.
Companies in sectors more exposed to sustainability-related regulations and reputational risks, such as energy, utilities, and consumer staples, were more likely to have better board oversight, according to the research.
“There is growing recognition by investors, as well as senior executives in most industry sectors, that certain sustainability issues now represent material risks and opportunities to their companies, and hence to their ability to either protect value or create new value,” said Jane Nelson, who directs the Corporate Responsibility Initiative at the Harvard Kennedy School and sits on the boards of Newmont Mining Corp. and investment firm Abraaj Group.
“As such, these issues need to be addressed more strategically and proactively by boards,” she said in an email to Bloomberg Law.
Nelson — who’s worked on corporate responsibility, sustainable development, and other issues throughout her career — said appointing subject-matter experts like herself isn’t the only way to make sure a board is versed in sustainability. Chief executive officers and other senior company executives that are often looked to as director candidates already have experience in implementing an effective sustainability strategy, she said.
“Usually you don’t look for a one-trick pony,” Peggy Foran, chief governance officer at Prudential Financial Inc., told Bloomberg Law. “You just can’t because the obligations and duties of a director are so broad.”
Rather than having a single sustainability expert, Prudential’s board includes four directors with background in this area, along with skills in other areas such as finance and public policy.
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