Once seen as unprofitable, environmental, social, and governance (ESG) initiatives appear to be directly related to a company’s long-term performance and profitability.
ESG comprises a number of areas of increasing interest to shareholders, including sustainability, diversity and inclusion, human rights, labor practices, executive compensation, employee relations, and board independence. According to Governance Challenges 2017: Board Oversight of ESG, a study by the National Association of Corporate Directors, KPMG, Marsh and Heidrick & Struggles, there were a record number of shareholder resolutions on climate change in 2016, and shareholder support for environmental proposals jumped from 11% in 2006 to 21% in 2016.
The report listed five ways boards can improve ESG oversight in response to investor and consumer expectations: integrating ESG initiatives into company strategy; ensuring that functional leaders proactively apply ESG in their business operations; improving disclosure on the impact of climate change; engaging shareholders on ESG issues; and using executive compensation to support ESG goals.