The joint study by NN IP and governance services provider Glass Lewis found that companies with stand-alone ESG committees account for 28% of enterprises in the top quartile of NN IP’s proprietary ESG Lens, and generally have above-median ESG Lens scores.
Companies in Europe and the United States tend to have stand-alone ESG committees at the board level, although European companies have higher-quality disclosures that those in the US where many enterprises only seek to meet the legal minimum. Weak reporting requirements when compared to Europe may account for this difference.
Adrie Heinsbroek, Chief Sustainability Officer at NN Investment Partners, says: “How much oversight boards provide on sustainability varies and may often be quite limited. The decision to adopt stand-alone or combined board-level ESG committees remains voluntary but is influenced both internally, such as having a company culture that values sustainability, and externally by factors such as stakeholder and regulatory pressures. Given these committees are voluntary, they could be viewed as signalling a company’s heightened focus on the strategic performance of ESG, but this may only reflect a superficial commitment.”
Heinsbroek goes on to say, “In terms of external factors, while recommendations, soft law, and shareholder expectations can influence companies into setting up committee oversight of sustainability and ESG issues, mandatory extra-financial disclosure requirements have a more direct and material impact on the presence of defined oversight structures. European companies, for example, which are affected currently by the greatest regulatory pressure to report extra-financial information, are the most likely to have some form of ESG committee in place, while companies in the energy sector may have more stand-alone or combined committees due to greater scrutiny of environmental issues, most notably climate change. The research findings once again show the important effect of companies having ESG in focus, and the impact on their ESG performance. As active investors, we continue to engage with companies to put this on their radar and exert our influence by having discussions on this topic.”