Boards Are Obstructing ESG — at Their Own Peril

Tensie Whelan
By Tensie Whelan
The list of environmental, social, and governance (ESG) issues that can pose financial risks to corporations exploded in 2020: climate change, water scarcity, pollution, #metoo, #blacklivesmatter, worker welfare, employee diversity, corruption, human rights abuses, supply chain scandals…not to mention Covid-19. Yet while many investors and chief executives now take ESG seriously in their decision making, one powerful constituency is lagging: corporate boards.

Recent research — including studies conducted by us and former MBA students Jamie Friedland and Ellen Knuti at the NYU Stern School of Business — show that many boards have little ESG-related expertise and many do not even recognize the need to pay attention to material sustainability issues.

For instance, PWC’s 2020 Annual Corporate Directors Survey found that only 38% of board members think ESG issues have a financial impact on a company. This despite the fact that institutional investors such as BlackRock and State Street Global Advisors — as well as major asset owners such as the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) — are increasingly focused on ESG performance. Corporate chief executives have joined the chorus, too: The Business Roundtable’s August 2019 pronouncement of corporate purpose was a broad and powerful embrace of positive ESG behavior that requires board action to execute.

Read the full Harvard Business Review article.
Tensie Whelan is a Clinical Professor of Business and Society and Director of the Center for Sustainable Business.