More companies setting net-zero targets but boards are skeptical on execution: survey

BOARD members of companies globally remain skeptical of their organisations' ability to deliver on environmental, social and governance (ESG) goals, according to recent findings from a survey conducted by Insead and Boston Consulting Group (BSG).

This comes even as over 5,200 companies globally made net-zero commitments in the lead-up to last year's United Nations Climate Change Conference.

In a joint press release on Friday (Apr 1), BSG and Insead noted that while climate was identified as one of the top 3 ESG issues in terms of financial impact among the directors surveyed, many companies have yet to offer a blueprint for driving progress on the issue.

Only 55 per cent of directors reported that their companies had prepared and published a plan for hitting their net-zero targets - and even a smaller share (43 per cent) said their organisations published financial statements accounting for the implications of climate change.

The report also highlighted directors' "pivotal role" in realising their companies' net-zero ambitions.

Aside from ensuring a clear transition plan while facilitating communications with investors, it recommends that directors help management assess and address critical dependencies in the climate plan.

"For example, boards will be increasingly assessing the role of their companies in driving collective action, including through alliances or industry initiatives... Directors should ensure that companies are lobbying for policies that support their decarbonisation initiatives. And they should be particularly vigilant that the company is not publicly supporting green policies but privately lobbying to preserve the status quo," said the report.

On the whole, about 40 per cent of directors surveyed have cited the ability of companies to execute as one of the biggest threats to improving ESG performance - with the board's lack of knowledge, data and capabilities as the top barrier to providing effective ESG oversight.

Roughly 70 per cent of all directors surveyed reported they are only moderately, or not at all, effective at integrating ESG into company strategy and governance.

Slightly less than half (47 per cent) believed their board had sufficient competence and experience to challenge management on ESG plans and exercise board oversight on execution.

When it comes to aligning a company's long-term business strategy with ESG challenges, a majority (91 per cent) of directors agreed that boards should focus more on improving strategic reflection than on monitoring operations.

However, less than half of this 91 per cent felt they were effective at driving such strategic reflection.

Senior BCG adviser Ron Soonieus, director in residence at the Insead Corporate Governance Centre as well as a co-author of the report, said it is critical for boards to "move from a compliance mindset" in order to "bring a true strategic lens" to ESG issues.

"However, many have not yet remade the board agenda to make time for that critical strategic thinking," he noted.

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