Corporate boards raise concerning knowledge gaps when it comes to sustainability, new global research finds

• A new report by Heidrick & Struggles, INSEAD and BCG, found that more than two-thirds of directors (68%) feel that sustainability has little impact on financial performance today, and only 10% believe sustainability will negatively affect medium- to long-term financial results.
• The survey also found that 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.
• A combined 48% of respondents confirmed that knowledge or experience with sustainability is either "not at all" or just "slightly" part of the competency matrix for their board selection.

CHICAGO, July 10, 2023 /PRNewswire/ -- Though significant progress has been made on boardroom awareness and acceptance of the sustainability agenda, capacity challenges, and a self-declared lack of expertise at the board level has revealed a gap between intentions and prioritization of the environmental, social and governance (ESG) agenda. That is according to a new global survey of board directors published today by Heidrick & Struggles (Nasdaq: HSII), a premier provider of global leadership advisory and on-demand talent solutions, in partnership with Boston Consulting Group (BCG), one of the world's leading management consulting firms, and the INSEAD Corporate Governance Centre, a global INSEAD centre of excellence for research, innovation and impact in corporate governance.

The report finds that, despite greater societal expectations on businesses in terms of ESG, most boards do not feel financial pressure to act on sustainability issues. 68% of those surveyed said that sustainability considerations have "no effect" or a "slight effect" on financial performance today, but 52% of those surveyed said they are acting on sustainability because it's the 'right thing to do', with a similar number (51%) citing legislative requirements.

The Role of the Board in the Sustainability Era 2023 is a global survey examining the perceptions of boards towards a full spectrum of ESG issues, as well as how the drive for sustainability is influencing and reorganizing 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 organizations' ambitions and stakeholders' expectations for sustainability.

This tension between the importance of sustainability, and the time and effort required to consistently give it the attention needed to prioritize it is a persistent theme, according to the report. 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.

The survey highlights that these challenges are a global phenomenon, with very few differences evident across regions and sectors, despite very different traditions of corporate governance and responsibility.

"The job of the board today is more challenging than in recent history.  Against the backdrop of economic uncertainty, rising social activism, and critical climate targets that are slipping from reach, boards require a new breadth of expertise that far extends beyond the traditional, operational, and financial health of a business," said Alice Breeden, Co-Leader of the European CEO & Board at Heidrick & Struggles. "If progress on sustainability is to improve, it is clear that further education, broader director diversity, and greater prioritization of ESG in the boardroom must be standardized to meet the challenges of the current environment."

Stakeholder pressure motivating action 

Directors cited increasing expectations from capital providers including investors and the importance of sustainability in attracting and retaining talent as major motivators of action. A smaller share—about one-quarter—see a longer-term financial risk from not integrating sustainability into the business: 10% expect a negative impact on medium to long term financial results and 13% see a threat to survival in the medium to long term.

"Today, organizations, including their boards, are completely occupied with the upcoming legislative and reporting requirements. Action on sustainability is mostly driven by stakeholder pressure. This triggers risk averse and defensive behavior, leading to organizations that only do the bare minimum," said Ron Soonieus, a Senior Advisor at BCG, a Director in Residence at INSEAD, and a coauthor of the report. "While the new rules and regulations serve a clear purpose, compliance does not guarantee the long-term success of the company. Boards struggle to see that, and a fair share believe that if they comply, sustainability is covered. Only 34% of respondents say they have a clear understanding of how long-term trends impact the future value of the company. Boards have a key role to play in ensuring sufficient weight is put on making sustainability an integral part of the long-term strategy, and to start seeing it as a source of competitive advantage."

Boards increase focus on sustainability—but gaps remain

There has been an undeniable shift in the expectations for the role of business in society which has created new challenges and competency requirements for board members. These heightened expectations have added to boards' traditional responsibilities to oversee finances, manage risk, and select company leadership - all at a time when boards must rapidly upskill on the implications of AI, new geopolitical risk, and a changing world of working models.

More than two-thirds of respondents (69%) reported that boards' expanding remit is increasing time requirements for directors. The share was higher for directors in the energy (77%) and finance and insurance (74%) sectors, two sectors in which balancing the world's need for more energy with climate change is creating significant new risks and opportunities. 

"Sustainability has become part of boards' fiduciary duty and steadily gaining priority on boards' agenda as its importance continues to permeate across the fabric of business and society," said Sonia Tatar, Executive Director of the INSEAD Corporate Governance Centre.

She added that, "More than ever, the weighted responsibility on boards is pointing to the imperative for targeted education to bridge the knowledge gaps which are fundamental in driving governance transformation starting from non-conventional stewardship from the top to collective leadership across the various stakeholders and within the organizational spectrum that deliver sustainable impact and actions."

Are Board Member Profiles to Blame?

A combined 48% of respondents confirmed that knowledge or experience with sustainability is either "not at all" or just "slightly" part of the competency matrix for their board selection. Perhaps surprisingly, this rises to 24% of board members stating that sustainability experience is "not at all" part of the assessment criteria for CEO hires.

Integrating sustainability into the business

Directors see room for improvement when it comes to integrating sustainability into decision-making across the whole business. 66% said that sustainability considerations should be fully integrated into business strategy - but just 38% said that that is the case today.

When asked what was preventing them from spending meaningful time on sustainability planning, more than 72% cited the need to devote time to non-sustainability-related, high-priority topics. 

While challenges remain with dedicating time and resources to prioritizing sustainability as a key focus area, leaders highlighted the value and importance of integrating sustainability into other strategic considerations as essential to driving greater sustainability outcomes.

ENDS

About the report:

The Heidrick & Struggles, BCG and INSEAD Corporate Governance Centre survey captured insights from 879 respondents from more than 25 countries and 19 industries. In parallel, a series of roundtables and discussions were conducted with some 200 directors in cities around the world.

The respondents to the survey, conducted in early 2023, have extensive board experience: two thirds are board members with a tenure of at least 6 years, and one-third have served in their roles for more than ten years. Compared with results from a similar survey published in 2022, our current survey garnered more than three times the number of respondents—an indication of the increased resonance of sustainability among directors broadly.

https://www.heidrick.com/-/media/heidrickcom/publications-and-reports/the-role-of-the-board-in-the-sustainability-era.pdf

About Heidrick & Struggles

Heidrick & Struggles (Nasdaq: HSII) is a premier provider of global leadership advisory and on-demand talent solutions, serving the senior-level talent and consulting needs of the world's top organizations. In our role as trusted leadership advisors, we partner with our clients to develop future-ready leaders and organizations, bringing together our services and offerings in executive search, diversity and inclusion, leadership assessment and development, organization and team acceleration, culture shaping and on-demand, independent talent solutions. Heidrick & Struggles pioneered the profession of executive search more than 65 years ago. Today, the firm provides integrated talent and human capital solutions to help our clients change the world, one leadership team at a time.® www.heidrick.com    

As one of the world's leading and largest graduate business schools, INSEAD brings together people, cultures and ideas to develop responsible leaders who transform business and society. Our research, teaching and partnerships reflect this global perspective and cultural diversity.

With locations in Europe (France), Asia (Singapore), the Middle East (Abu Dhabi), and now North America (San Francisco), INSEAD's business education and research spans four regions. Our 165 renowned Faculty members from 42 countries inspire more than 1,500 degree participants annually in our Master in Management, MBA, Global Executive MBA, Specialised Master's degrees (Executive Master in Finance and Executive Master in Change) and PhD programmes. In addition, more than 11,000 executives participate in INSEAD Executive Education programmes each year.

INSEAD continues to conduct cutting-edge research and innovate across all our programmes. We provide business leaders with the knowledge and awareness to operate anywhere. Our core values drive academic excellence and serve the global community as The Business School for the World.

About INSEAD Corporate Governance Centre

The INSEAD Corporate Governance Centre (ICGC) is engaged in making a distinctive contribution to the knowledge and practice of corporate governance globally. Its vision is to be the leading center for research, innovation, and impact in the field. Through its educational portfolio and advocacy, the ICGC seeks to build greater trust within the public and stakeholder communities, so that businesses are a strong force for improvement, not only of economic markets but also for the global societal environment.

About Boston Consulting Group (BCG)

Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.

Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.

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SOURCE Heidrick & Struggles International, Inc.