Companies with strong board networks, especially companies with experienced board members, have better environmental, social and governance (ESG) policy outcomes than those with weak board networks, a study from S&P Global Market Intelligence’s Quantamental Research found.
Corporate boards with members who serve on multiple boards and have a range of professional connections are the best suited to help with ESG policy because they can use their experience to acquire information and understand trends in the area and can share that knowledge with their companies, the study shows. Board members with multiple connections could have access to information that may not be available to other companies, the study says. Additionally, directors who serve on multiple boards have the ability to transfer successful ESG strategies from one board to another.
These experienced board members also are more able to address the ESG needs of different shareholders, which leads to better ESG performance, according to the study.
Boards have long played a key role in the success of many areas of corporate operation, including in areas of ethics and compliance. ESG polices are increasingly a focus of how companies address their growth moving forward, and board effectiveness and stronger board management in the area is becoming increasingly important.
A 2020 survey by PricewaterhouseCoopers showed that 45% of board directors say that ESG topics are regularly part of board discussions, up from 34% in 2019. Company Shareholders also have an increasing interest in ESG issues, such as supply chain risk and climate change, the report says, and that boards are an important part of a company’s stakeholder management strategy.
The S&P study shows that boards with ample experience and connections have greater environmental efficiency and generate less waste than boards that have weaker networks. Board members that are well connected performed better in all aspects of this than those that weren’t. The median ESG composite rank for strong boards were 19 points higher than those considered weak.
The greatest differences in the areas outlined were in environmental policy and management systems as well as how businesses deal with operational eco-efficiency. According to the report, companies with a strong board presence were 23 points higher in environmental dimension, 13 points higher in operational eco-efficiency and 14 points higher in environmental policy and management systems.