By Kira Ciccarelli, lead research specialist, Diligent Institute
In the last few years, the pressure for organizations to take action on ESG has been mounting.
The wake of the Covid-19 pandemic brought existential issues to the foreground: a talent crisis, employee safety and well-being, addressing systemic inequality and injustice through greater emphasis on diversity, equity & inclusion, all on top of a mounting climate crisis and renewed calls for companies to operate more ethically and sustainably from employees, customers, consumers, investors and regulators.
These challenges raised more questions for the board: how should teams be structured and empowered to lead on these issues? What are organizations’ goals and how can they best be achieved? How can companies accurately and adequately report on progress? How can the board better understand and oversee strategy that now encompasses more responsibilities than ever before?
As boards grappled with these larger questions, Diligent Institute conducted research to discover what directors are doing to prepare to oversee ESG more rigorously and launched Climate Leadership and ESG Leadership certificate programs to help directors upskill around these issue areas.
Board composition and ESG How many directors already bring ESG experience onto the board? In September 2022, Diligent Institute published its inaugural Global Modern Leadership Report in collaboration with 22 partner organizations to provide a more comprehensive view of corporate boardroom composition and diversity globally. In this report, we conduct a global analysis of some of the major dimensions of boardroom diversity, including director skillsets and expertise.
Our analysis of newly appointed board directors’ skillsets and professional backgrounds – taken from Diligent’s database of nearly 6,000 public companies around the globe – shows that new talent is being added to boardrooms.
The percentage of newly appointed directors bringing in professional experience in areas such as technology, marketing, sales, human resources, ESG and legal stood at 35 percent from January through May 2022.
But through May 2022, just 1.7 percent of new director appointees had ESG or sustainability expertise. In 2021, this figure was only 2 percent, and was lower relative to the percentage of directors being added to boardrooms who bring other domain skillsets included in this analysis. In spite of recent increases in the percentage of directors with ESG experience being added to the boardroom, the percentage of directors bringing these backgrounds is still relatively low.
Board structure and strategy around ESGKnowing that the number of director appointees with prior ESG or sustainability expertise is low, what are boards doing to upskill current members? In May 2022, Spencer Stuart and Diligent Institute published a report entitled Sustainability in the Spotlight, which sought to dig deeper into board oversight, structures and upskilling around ESG.
According to our global survey results, strategy is the most common area where ESG goals and metrics have been incorporated, at 71 percent of respondents. Integrated risk management is next at 52 percent, followed by director appointments at 48 percent. Meanwhile, 32 percent are incorporating ESG into director onboarding and training, and 34 percent into board evaluations.
Directors are only moderately confident in their organization’s alignment of ESG goals with overall strategy, ranking it a seven on our 10-point scale. They rate their board’s fluency and competency around ESG at a 7/10 as well.
Organizations are also employing a wide variety of methods to increase their board’s ESG knowledge. More than four in 10 (42 percent) are bringing in outside experts or consultants, followed closely by board training for directors at 38 percent. Only 15 percent are doing nothing to upskill the board.
Additionally, a similar survey being fielded right now in partnership between the Diligent Institute and the Institute of Directors in Ireland shows that surveyed directors believe the full board should be able to oversee ESG strategy, and that each director should have a solid understanding of ESG issues rather than bringing in only one ESG or sustainability expert.
Diligent Climate Leadership and ESG Leadership certificate programsIn summary, boards are incorporating ESG goals and metrics into many aspects of their business. They are also thinking about ESG when it comes to director appointments, but the percentage of directors already bringing in this expertise is relatively low. How can you work to upskill the board to face these new challenges?
Diligent’s certificate programs in Climate Leadership and ESG Leadership equip modern leaders with the skills and knowledge needed to address the most pressing modern corporate governance challenges and opportunities. The certifications are entirely virtual eLearning programs with plentiful networking opportunities, access to the teachings of world-renowned speakers and experts in ESG and sustainability, and 12 months’ access to course curricula.
Signing up for both certificates qualifies the registrant for a $500 discount with code PackageMGS2022 off the combined cost of $5,000. Registrants may also sign up for individual programs at $3,500 per participant.
‘The Diligent Climate Leadership Certification course offers comprehensive and relevant content on climate risk and strategy – an important topic in the boardroom today. The course provides a valuable skillset for board members, enhancing their ability to assess the business risks and opportunities that climate change presents. The certification is challenging, but implements a common-standard level of education on climate for corporate leaders around the world’
– Linda Addison, independent director, Globe Life and KPMG