The need for sustainability across the full spectrum of environmental, social, and governance (ESG) issues is remaking companies, supply chains, and economies. At the same time, companies are facing disruptions on other fronts—including the potential of generative AI to change how companies operate, new trade risks, geopolitical uncertainty, and regulatory changes. Taken together, these changes are driving the most profound business transformation in 50 years— and are having a fundamental impact on how the boards governing these companies must operate.
The INSEAD Corporate Governance Centre, in collaboration with Heidrick & Struggles and BCG has launched the second edition of the Board ESG Pulse Check based on surveys and roundtable discussions to examine the perceptions of boards towards a full spectrum of ESG issues, as well as how the drive for sustainability is influencing and reorganising the efforts of boards. The findings reveal how boards are adapting their own composition, governance, and process considerations with varying degrees of success to better meet their organisations’ ambitions and stakeholders’ expectations for sustainability.
Overall, the results of the survey highlighted that while significant progress has been made on boardroom awareness and acceptance of the sustainability agenda, availability and a self-declared lack of expertise at the board level has revealed a gap between intentions and prioritisation of the environmental, social and governance (ESG) agenda with only 29% of global board directors feel completely knowledgeable enough to challenge or monitor execution on sustainability, and 89% rely only on management updates to stay informed on the topic of ESG.
Despite greater attention to meeting societal expectations overall, most boards do not feel the financial pressure to act on sustainability issues.
Some 68% said sustainability considerations have no effect or a slight effect on financial performance today.
Pressure from stakeholders is cited as the main motivation driving action on sustainability. 52% of board directors surveyed said they are acting on sustainability because it’s the ‘right thing to do’, with a similar number (51%) citing legislative requirements. Only 19% were acting on sustainability because it is having a severe impact on the way they do business today.
Although a significant majority (79%) of board members surveyed said their board had a very clear understanding of the strategic opportunities and risks sustainability presents, only 29% completely agreed they had sufficient knowledge to effectively challenge management on sustainability plans and ambitions and exercise oversight on their execution.
While 66% of board directors surveyed said that sustainability considerations should be fully integrated into business strategy. But just 38% said that is the case today. And although roughly half also said that sustainability should be entirely integrated into the board agenda and investment decisions and asset allocation, less than 30% reported that is happening currently.
Questions that boards should consider
What future do we want for this organisation?
- Are we as a board spending too much time looking backward instead of forward?
- Are we managing for risk or regret?
- Do we want to oversee a company that is focused on risk management when it comes to sustainability - or is seizing opportunities and building competitive advantage?
- Are we being realistic, pragmatic, and sober minded about the complexities of these issues, the high stakes, and the tough decisions we need to make?
- What is our contribution going to be to this organisation and the global community at large, and what is our legacy?
- Are we building organisational capabilities to navigate the uncertain future and potential shifts?
As the scope of board directors' role and responsibilities continues to expand, it is essential for boards take a pause to reflect on their impact and influence on the sustainability agenda that their companies lead. Real change is driven by competency, character, courage and resilience to follow through on the choices that have been made.