Is Corporate ESG Expertise Sufficient?

Corporate ESG programs have endured a bumpy ride the last few years. As ESG has evolved from a trendy corporate buzzword to political lightning rod to key business initiative and fiduciary priority, regulators around the globe have codified rules for disclosing climate-related information, underscoring the need for companies’ boards of directors to maintain the proper expertise to ask the right questions about material ESG issues. It is at best an open question, though, whether corporations have enough know-how to help navigate through the rapidly changing ESG landscape.

A new study released by the NYU Stern Center for Sustainable Business offers some insight into the evolving role of U.S. public boards in managing ESG issues. The study examined data from 2018 to 2023 and determined that although boards are “still woefully underprepared in certain areas,” they have made some significant progress.

Indeed, companies have accepted, by and large, that they need ESG experts heading up ESG committees on their boards of directors. The NYU study found that the number of Fortune 100 companies with ESG board committees increased from 22 in 2018 to 89 in 2023. Stating what was obvious even then, SEC commissioner Allison Herren Lee noted three years ago that “boards are stepping up their engagement on climate and ESG-related risks and opportunities.”

Companies also seem keen on highlighting their growing expertise in ESG. This search on Intelligize shows examples of disclosures in which companies talked up the ESG qualifications of their boards. In proxy statements released this month alone:

• Mattel touted that seven of its 10 board nominees have ESG or “corporate citizenship” skills.
• Century Aluminum shined a spotlight on the “sustainability” expertise of its independent director Tamala Oliver.
• Netflix noted that its director Brad Smith, who moonlights as the president of Microsoft, brings “environmental sustainability” expertise to the board, underlining the fact that Smith “has led a push for diversity within Microsoft’s legal division.”

But perhaps the best conclusion in this case is that the ESG credentials of corporate boards are improving, but not dramatically. In the NYU study, for instance, the percentage of Fortune 100 board members who possessed relevant ESG credentials increased from 29% to 43% between 2019 and 2023. That seems like solid growth, but is it aligned with changing attitudes about the heightened importance of ESG as a factor in overall corporate strategy and regulatory compliance?

NYU business professor Tensie Whelan, one of the study’s authors, points to two areas where corporations are falling particularly short: climate and worker welfare. She notes that board members with climate credentials climbed from just three in 2018 to 22 in 2023. A seven-fold increase sounds significant, but keep in mind that there were 50 members with cybersecurity credentials in 2023. Similarly, just seven board members had credentials in labor relations, according to the study.

Will the spread of ESG expertise in corporate boards accelerate going forward, or will companies decide current levels are good enough? Stay tuned.