This post is a commentary piece discussing the findings of Diligent Institute and Spencer Stuart’s 2023 report, Sustainability in the Spotlight: Has ESG lost momentum in the boardroom? This is the fourth blog in a series of global commentary pieces analyzing how the global results compare with ESG practices and oversight in specific regions.
From the findings of our survey, 29% indicated that they have increased their discussion around ESG issues in boardrooms and committee meetings to indicate how their board’s oversight of environmental and or social issues has changed.89% of respondents also indicated that their board discusses ESG at least once in a year, this is evident in the number of times articles by companies mention ESG, says Diligent data.
The thought of ESG factors when making capital spending decisions has never faced such a great period of inquiry in recent times. How frequently is ESG in the news? Analysing insights from Diligent over a course of 365 days, the data suggests that there has been fluctuations in the number of articles with ESG counts over the months. From May 2022, the data recorded 4394 ESG article counts from 302 companies which dropped to 4245 and 270 article and company counts respectively in June 2022. Over the one-year period, the lowest count was recorded in December 2022 where the number of ESG article counts were 3624 from 183 companies. However, the number of article counts peaked strongly in March. In March, the Manzama AI tool at Diligent also recorded an ESG article count of 5624 from 324 companies.
The overall story count of ESG also paints a similar picture. The total ESG story count peaked heavily in March 2023 at 649 which is an increase of 189 from February 2023. Again, the least count of ESG stories within the time frame was in December 2022, 306.
Emerging technology Risk pushes ESG article count up
Organisations are adopting emerging technologies like never before. New and disruptive technologies such as artificial intelligence (AI), machine learning, Internet of Things (IoT), robotics and automations alike are helping to deliver better outcomes and experiences for employees and customers alike, and at lower costs. However, the downslide of these emerging technologies is the potential increase in the risk profile for any organisation. The brisk escalation in the use of emerging technologies has the capacity to expand small issues quickly and create unpredictable barriers that can cause extensive damage to an organisation.
In Diligent Institute and Corporate Board member’s annual what directors think 2023, directors surveyed indicated that cybersecurity remains one of the most challenging issues for them to oversee. Perhaps, this is evident in how companies and other stakeholders are talking about emerging technology and the risk it poses to the business environment. While the number of ESG article count dropped from 5624 in March 2023 to 5278 in April 2023, the number of ESG counts in April was heavily driven by emerging technology risk. The data from Diligent suggests that Emerging Technology risk has been on the rise steadily from January 2023 peaking significantly in April 2023 at 1037 article counts. However, the news is not positive. The data indicates a health score of -0.37. Economic Risk (inflation) had been leading the ESG Topic story count until February 2023, but Emerging Technology Risk took the lead due to Generative AI taking the front page headlines with ChatGPT.
Presence of ESG/Sustainability committees, how are companies doing?
In our survey, we sought to ask respondents where primary ESG oversight is held. Approximately 49% indicated that their full board have oversight of ESG. Again, another significant percentage, about 18% indicated that they have designated ESG/Sustainability committees to oversee ESG. Analyzing data on approximately of 6442 companies from Diligent, the findings suggests that on average 34% and 16% of companies have dedicated ESG and sustainability committees, respectively910. Interestingly, US and Canadian companies are more likely to set up ESG related committees relative to their counterparts in Europe. Approximately 70% of companies in the north American nations have ESG committees compared to only about 31% of continental Europe. Inversely, the percentage of companies in US and Canada with sustainability committees according to diligent data stands at 7% which trails that of continental Europe at 18%.
Appointing sustainability experts on boards, key to changing the narrative on ESG?
According to the results of our survey, few boards (9.81% of respondents) are considering appointing directors with sustainability background in light of upcoming regulations such as CRSD. Analysing data on 6442 companies with over 110,000 directors from Diligent, the findings suggests that the percentage of directors with sustainability background stands at approximately 0.82%. However, the industrials sector has the highest share of sustainability experts. Out of all the companies that has sustainability experts on their boards, companies in the industrials sector account for approximately 20%. Comparatively, companies in the communication services sector account for approximately 3% of companies with sustainability experts on the board.
Interestingly, the data suggests that the utilities sector has the highest percentage of sustainability experts when the entire data set is considered. Out of 140 companies analysed in our dataset, 52 of them had sustainability experts on their boards. Of 1074 companies in the healthcare sector analysed, about 46 of them had sustainability experts on their boards.