Executive Briefings

Most Corporate Boards Said to Lack Independent Information on Their Business's Impact on Environment

Though many companies lack the structural framework to enable proper director oversight of sustainability programs, they rarely consult outside expertise, according to a report released today by The Conference Board. Sustainability in the Boardroom, based on a survey of corporate secretaries at 50 U.S. corporations, finds that what appears to be largely missing is access to independent sources of information on the impact of business operations on the environment, as well as detailed procedures and metrics for integrating social objectives into daily corporate activities.

"The environmental catastrophe that has been unfolding in the last few weeks in the Gulf of Mexico is indicative of how closely intertwined sustainability and corporate strategy really are," says Matteo Tonello, director of corporate governance research at The Conference Board Governance Center and author of the report.

The Conference Board has been documenting governance practices for several years and regularly found that only a small number of companies consistently elevate sustainability issues to the strategic discussions that take place at the board level. For most companies, sustainability discussions with the board only take place in reaction to emergency situations like the oil spill in the Gulf. "However, more directors are realizing the critical influence of stakeholder relations on firm performance and feeling pressure from regulatory bodies, enforcement agencies, and activist investors," says Tonello. Respondents to Sustainability in the Boardroom indicate that their directors continue to rely on reports by senior executives (89.2 percent). Directors almost never use additional sources (including peer-company benchmarks, environmental reports, director education programs, and consultants) that would help them critically verify and analyze any internally produced information on these matters. 

Other key findings of the report: 

Efforts are fragmented -- The majority of companies report missing the basic foundations of an enterprise-wide sustainability program, including a clear mission statement, a dedicated functional department, and a system to assess whether sustainability activities help financial performance. As many as 61.9 percent of surveyed companies do not use any metrics to link executive pay and accomplishments in the social or environmental sphere. 

• Standardization and benchmarking are lacking -- Most surveyed public companies (76.5 percent) do not employ any of the widely endorsed standards existing today in many areas of social and environmental concern. Instead, these companies often resort to their own definition of sustainability, preventing the development of a level playing field for performance assessment by investors and other constituents. 

• Reporting is not always meaningful -- Unlike some of their European counterparts, sustainability reporting by U.S. public companies remains embryonic. Companies that voluntarily disclose progress on their sustainability initiatives tend to do so via their public web site or through an annual report. But as many as 42.9 percent of respondents indicate that their companies do not include any information on metrics in their disclosure. 

Rising activism may make the difference in the near future -- Recent regulatory developments and the increased sensitivity of enforcement authorities to the risk implications of environmental issues have opened the door to shareholder activism. In the last few years, socially responsible investment companies and large retirement funds have submitted a growing number of resolutions on matters of corporate sustainability, ranging from climate change to political spending and from board diversity to pay disparity. Approximately 57 percent of surveyed companies report having received an explicit request from an activist investor. 

Source: The Conference Board

Though many companies lack the structural framework to enable proper director oversight of sustainability programs, they rarely consult outside expertise, according to a report released today by The Conference Board. Sustainability in the Boardroom, based on a survey of corporate secretaries at 50 U.S. corporations, finds that what appears to be largely missing is access to independent sources of information on the impact of business operations on the environment, as well as detailed procedures and metrics for integrating social objectives into daily corporate activities.

"The environmental catastrophe that has been unfolding in the last few weeks in the Gulf of Mexico is indicative of how closely intertwined sustainability and corporate strategy really are," says Matteo Tonello, director of corporate governance research at The Conference Board Governance Center and author of the report.

The Conference Board has been documenting governance practices for several years and regularly found that only a small number of companies consistently elevate sustainability issues to the strategic discussions that take place at the board level. For most companies, sustainability discussions with the board only take place in reaction to emergency situations like the oil spill in the Gulf. "However, more directors are realizing the critical influence of stakeholder relations on firm performance and feeling pressure from regulatory bodies, enforcement agencies, and activist investors," says Tonello. Respondents to Sustainability in the Boardroom indicate that their directors continue to rely on reports by senior executives (89.2 percent). Directors almost never use additional sources (including peer-company benchmarks, environmental reports, director education programs, and consultants) that would help them critically verify and analyze any internally produced information on these matters. 

Other key findings of the report: 

Efforts are fragmented -- The majority of companies report missing the basic foundations of an enterprise-wide sustainability program, including a clear mission statement, a dedicated functional department, and a system to assess whether sustainability activities help financial performance. As many as 61.9 percent of surveyed companies do not use any metrics to link executive pay and accomplishments in the social or environmental sphere. 

• Standardization and benchmarking are lacking -- Most surveyed public companies (76.5 percent) do not employ any of the widely endorsed standards existing today in many areas of social and environmental concern. Instead, these companies often resort to their own definition of sustainability, preventing the development of a level playing field for performance assessment by investors and other constituents. 

• Reporting is not always meaningful -- Unlike some of their European counterparts, sustainability reporting by U.S. public companies remains embryonic. Companies that voluntarily disclose progress on their sustainability initiatives tend to do so via their public web site or through an annual report. But as many as 42.9 percent of respondents indicate that their companies do not include any information on metrics in their disclosure. 

Rising activism may make the difference in the near future -- Recent regulatory developments and the increased sensitivity of enforcement authorities to the risk implications of environmental issues have opened the door to shareholder activism. In the last few years, socially responsible investment companies and large retirement funds have submitted a growing number of resolutions on matters of corporate sustainability, ranging from climate change to political spending and from board diversity to pay disparity. Approximately 57 percent of surveyed companies report having received an explicit request from an activist investor. 

Source: The Conference Board