As the growing focus on environmental, social and governance issues continues to evolve and proliferate, directors must be aware of every topic that impacts their company and industry, regardless of whether they sit on a committee. Directors are now expected to have a comprehensive understanding of pertinent ESG matters so they can discuss them with investors.
ESG Engagement Trends Between Directors and Investors
We are seeing more companies include one or more directors in shareholder engagement efforts. Depending on the topic and investor, the choice of which director(s) to include may vary, but as investors continue to expand engagement dialogues beyond company-specific issues the inclusion of board members may be necessary.
One example of this trend is BlackRock, Inc.'s second annual Director Dialogue event. The event was a formal forum intended to enable discussions around governance issues with directors from over 30 companies.
How Are Companies Assigning ESG Responsibilities on Boards?
Some directors may have ESG expertise, but every board member has a general fiduciary duty to oversee the company's approach to ESG matters as a component of the company's business strategy. Some boards create committees to help oversee sustainability matters. Other boards include these responsibilities in a committee's scope.
S&P 500 companies average approximately four standing committees, exceeding the three committees of compensation, audit and nominating or governance that are required by the NYSE. Committee topics vary according to company needs and circumstances. Thus far, new board committees may not be necessary in most cases. Spencer Stuart's most recent review of standing committees among S&P 500 companies noted a slight decrease between 2013 and 2018 in the number of public policy and/or social and corporate responsibility committees.
What Companies and Boards Should Consider Successful Oversight in the Future
As companies evolve their sustainability practices, they may find that they have a need additional advisory or external expertise. For example, board oversight may be enhanced by partnering with a third party to implement and measure metrics, such as those advocated by frameworks that are offered by the Sustainability Accounting Standards Board or the Task Force on Climate-related Financial Disclosure. Learn more about how directors and senior executives can meet ESG-related investor expectations here.
If you have questions or comments, please email firstname.lastname@example.org or call 212 440 9800.