Assigning ESG responsibilities within the board
ESG oversight is becoming an increasingly core mission for boards, and important decisions need to be made about where that responsibility lies. Governance professionals suggest there is no one-size-fits-all approach. Some believe it can be helpful to have ESG oversight co-ordinated across different committees where relevant. Others prefer to keep it primarily at the main board level.
In our research, almost half (43 percent) of respondents say their full board has primary oversight of ESG issues. The next-most common response is the nominating and governance committee, cited by 25 percent of respondents. Very few mention the audit (4 percent), compliance (1 percent) or risk (3 percent) committees, and no respondents cite the compensation or finance committee as having primary oversight of ESG issues. Among those who name another committee as having oversight, the most common response is a specific ESG or sustainability committee.
Small-cap company respondents are more likely (58 percent) to say primary ESG oversight is assigned to their main board than those at mid-caps (33 percent), large caps (35 percent) or mega-caps (37 percent). As a result, those at small caps are less likely (16 percent) to say their nominating and governance committee takes the lead than those at mid-caps (45 percent), large caps (30 percent) or mega-caps (26 percent).
Globally, two thirds of respondents say their main board or the nominating and governance committee has primary ESG oversight. But the responsibilities are also shared among other committees. Among all respondents, 64 percent say the main board has at least some degree of oversight of ESG issues, followed by the audit committee (45 percent), nominating and governance committee (32 percent), compensation committee (28 percent), risk committee (22 percent), compliance committee (8 percent) and finance committee (6 percent).
In general, larger firms more frequently assign some ESG oversight to a range of their committees, according to respondents: 69 percent of those at mega-cap companies say their audit committee has some oversight, as do 50 percent of those at large caps, while only 38 percent of those at mid-caps and 32 percent of those at small-cap companies cite the involvement of their audit committee.
Similarly, 54 percent of respondents at mega-caps say their nominating and governance committee has some ESG oversight, far more than do those at large caps (39 percent), mid-caps (27 percent) or small caps (23 percent). Around 40 percent of mid, large and mega-cap companies say their compensation committee has some ESG oversight, compared with just 16 percent of those at small caps.
There are broad similarities between regions in terms of distributing ESG oversight among board committees. That said, 19 percent of respondents in North America say their board assigns some ESG oversight to the risk committee, compared with 30 percent in Europe and 33 percent of those in Asia.
Around half of respondents in North America and Asia say their nominating and governance committee has some ESG oversight, compared with just 15 percent of those in Europe.
