According to a PwC survey, less than half of US corporate boards include ESG (environmental, social and governance investing principles) in their regular agendas. This decline in ESG as a framework for investing has been attributed to its ambiguity — less than 10% of surveyed board members believe ESG to mean the same thing as sustainability.
520 directors of US-based public companies were surveyed. 69% were board members of companies with more than $1 billion in revenue, with 58% having been members of their respective boards for more than five years.
47% of respondents reported that ESG issues were a regular part of board meeting agendas, a decline from 2023 (52%) and 2022 (55%) but still largely above the rate in 2019 (34%).
PwC reported on the “increasingly complex and fraught” context around ESG and its use in the business world. 66% of directors acknowledged that “ESG means different things to different people.” Only 42% of those surveyed believed that company boards fully understood ESG. This issue is more prevalent in smaller companies than on the boards of larger firms.
Smaller firms also saw less of a link between ESG and company performance, with only 15% of directors saying that ESG has a clear impact on their bottom line, compared to 32% of directors from large companies.
Just over half of the directors admitted that their boards were adequately prepared to manage ESG disclosures, the same rate at which they reported being aware of how their climate commitments will impact the allocation of resources in their operations.
Many respondents believe that ESG has become a distraction from business operations, more concerned with policy and social issues than driving business during a tense time in the American political landscape. More than a third of respondents admitted that “ESG has become a charged term and is no longer valuable.”
To these board directors, a shift away from ESG does not always mean a shift away from sustainable practices, with only 7% agreeing that “ESG means the same thing as sustainability.”
Still, many ESG-related issues receive frequent attention from company boards. 95% of the survey responses indicated that data security and talent management (which includes Diversity, Equity and Inclusion practices) were discussed at least once in the past year. Carbon emissions and climate change were discussed over the past year by 67% and 60% of boards respectively, based on survey results.
PwC recognized the importance of sustainability as a framework for directors’ decision-making, stating:
“Directors play a crucial role in guiding management to allocate resources and attention to sustainability issues. Forward-looking companies recognize the connection between committing resources to sustainability initiatives and achieving long-term success. Boards need to discern which topics have a direct impact on near-term performance or capital allocation decisions and which require monitoring without necessitating direct input.”
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The ambiguity surrounding ESG and its relevance within a profit-driven, business context has meant it has been increasingly dismissed by board members and decision-makers across the corporate world. For more widespread adoption, PwC’s survey suggests that more comprehensive guidelines and definitions of ESG are needed, but also that directors must “move beyond the terminology and understand management’s process for identifying the organization’s most important risks and how they may evolve over time.”
This lack of clarity can be attributed to the “multifaceted nature” of ESG, focused on such a wide array of topics that affect companies differently. For example, the E of ESG (environmental) would be much more relevant to a fossil-fuel or energy company than a consultancy, whereas the social aspect of ESG would be more impactful for a recruiting company rather than an agriculture product company. As such, boards have been looking to better define ESG as it relates to their own operations, to understand their own business risks, and in turn, align their strategy.
In the report, PwC states that ESG can be a framework that works hand-in-hand with growing business. “Whether the company elects to call it ESG or sustainability, identifying the issues that credibly drive sustainable value creation involves expanding the lens when developing long-term strategic plans, identifying and mitigating material risks, and recognizing emerging growth opportunities,” according to the report.
Environmental, social, and governance issues have, in recent years, come to the forefront of US society and, consequently, corporate boardrooms. Still, PwC’s report shows that many stakeholders do not agree with the ESG investing framework and its universal application across all types of business across all industries. Sustainability and social justice remain a growing focus for businesses, but ESG as a defined principle will need to evolve to become understood and used by the biggest companies in the US
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — Cover Photo Credit: Freepik.
