Nearly Half of Corporate Directors Want More Clarity on How Sustainability Goals Link to Larger Company Strategy, Finds Diligent and Spencer Stuart

New research shows organizations are heightening their focus on ESG amidst strengthened disclosure requirement, despite public backlash

Forty-five percent of corporate directors globally say they need greater insight into how their company’s sustainability goals link to corporate strategy, according to new insights from Diligent Institute and Spencer Stuart. The need for clarity on what environmental, social and corporate governance (ESG) means for the business comes amidst heightened disclosure expectations and requirements, with 60% of directors taking action to ensure their ESG strategy is reflected in annual reports, and 53% enhancing ESG disclosures.

Despite strategy challenges, the second annual Sustainability in the Spotlight report, which surveyed nearly 1,000 corporate directors around the world, reveals that most companies globally view ESG in terms of opportunity than risk. There is a geographical divide, however, with European companies more likely to view ESG as an opportunity compared to their U.S. counterparts, at 56% compared to 30%. Meanwhile, U.S. companies are more likely to view ESG as a risk than their European counterparts, at 34% compared to 13%.

“Whether you treat ESG as a risk or opportunity, or both, successful organizations need to understand their data to ensure they are staying compliant with disclosure requirements and meeting the expectations of shareholders and stakeholders,” said Lisa Edwards, Executive Chair of Diligent Institute. “These findings suggest that boards are taking sustainability seriously, and looking for greater clarity into how it factors into their overall corporate strategy.”

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“Our survey shows that many boards have made great strides in formalizing their approach to sustainability by defining oversight responsibilities and establishing sustainability metrics in many parts of the business”

Other top findings from the report include:

The biggest obstacles to ESG progress center on strategy.

• 22% of directors indicate competing business or strategic topics on the board agenda, and the same amount report a lack of clarity for what ESG means to the business.

• Only 2% of directors identify public backlash against ESG as being one of the largest obstacles to ESG strategy and implementation.

Many organizations report plans to strengthen their focus on ESG in the next 5 years.

• 90% of organizations have incorporated environmental goals or metrics into their business, and 87% have done the same for social goals/metrics.

• 29% predict a more concerted effort on ESG initiatives in the next five years, and 18% predict stronger linkage between ESG initiatives and business impact.

ESG is a global issue, but European boards are more engaged and optimistic about ESG issues than their U.S. counterparts.

• 63% of European boards evaluate progress on ESG goals and strategies on a quarterly basis or more, compared to 44% of U.S. boards. Additionally, 34% of European boards feel ESG metrics led to better performance of their stock, compared to just 15% of U.S. boards.

• In the U.S., only 25% of directors believe their organizations have effective leadership and high ambition across both environmental and social issues, compared to 50% of directors in Europe.

The boardroom has heightened focus and energy on reporting.

• 60% are taking extra care to ensure that their ESG strategy is adequately reflected in annual reports/filings.

• 53% of directors say their organizations are enhancing current ESG disclosures.

“Our survey shows that many boards have made great strides in formalizing their approach to sustainability by defining oversight responsibilities and establishing sustainability metrics in many parts of the business,” said Jason Baumgarten, head of Spencer Stuart’s global CEO and Board Practice and the firm’s sustainability initiatives. “Companies that go further and rigorously define sustainability strategies that link to their business model have the opportunity to unlock tremendous value and unleash the next wave of growth.”

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