Boardroom ESG expertise leads to better performance on corporate sustainability, study finds

Companies without any ESG expertise at the board level tend to underperform on sustainability compared with companies that have ESG experts, according to a joint survey by NN Investment Partners and Glass Lewis.

The survey uses data from NN Investment Partners’ proprietary ESG Lens score, a tool that provides a single ESG score for each company or country assessed, while considering a wide range of data points. The resulting score is used as a key input for the overall ESG assessment of the company or country in question.

The survey looks at companies in the US, Europe and Asia-Pacific. It reflects on the impacts of having ESG expertise at the board level, having a dedicated ESG sub-committee at board level or having no ESG expertise at board level at all. 

In Asia-Pacific, 60 percent of companies don’t have any ESG expertise at the board or committee levels. Only 23 percent of companies in Asia-Pacific have ESG expertise at boardroom level and on an ESG committee, the lowest of the three regions. 

Half of companies in Asia-Pacific are deemed to have fair ESG disclosures, while 33 percent are deemed to have poor ESG disclosures.

More than half of US companies surveyed have ESG expertise at the board level and on a designated ESG committee. Less than a fifth (19 percent) don’t have an ESG expert in the boardroom – the lowest level of all three regions – but nearly 40 percent of US companies are considered to have poor ESG disclosure, with only 16 percent deemed to have a good ESG disclosure score. 

‘The US has a shallow but mandatory reporting regime, while disclosure mechanisms in Asia-Pacific countries tend to be voluntary; as a result, companies that choose to disclose may be more focused on disclosing high-quality ESG information,’ note the survey authors.

In Europe, 42 percent of companies have no ESG expertise in the boardroom, and only one third (33 percent) have ESG expertise at the board level and on a designated committee.

But European companies have higher standards of ESG disclosure than companies in the other regions. Nearly 40 percent of European firms are deemed to have good ESG disclosures, significantly higher than either the US or Asia-Pacific. 

‘The quality of disclosure is stronger in Europe than in the US, where reporting requirements are laxer and many companies seem to take a legal minimum approach to disclosure,’ explain the report authors.

Good disclosure doesn’t equal good results

The report authors find a mixed picture when exploring whether companies with good ESG disclosures score well with the ESG Lens. While a third (33 percent) of companies with good ESG disclosures rank well with the ESG Lens, 27 percent perform poorly.

‘While many companies with the best disclosure practices also had better ESG Lens scores, a significant number (27 percent) fell into the bottom quartile,’ explain the survey authors. ‘This could be attributable to a need for transparency among companies that face significant ESG challenges or to the particularities of the sample we used.’