ESG issues top wish-lists for investors and employees

The annual EY Long-Term Value and Corporate Governance Survey finds a significant increase – from 66 percent to 84 percent – of board members and C-suite who say the COVID-19 pandemic increased expectations from consumers, employees, governments and broader society that companies will drive societal impact, environmental sustainability, and inclusive growth. However, there’s also an increase – from 28 percent to 43 percent – in respondents identifying lack of commitment from the board to make decisions that fully integrate ESG factors that would lead to long-term value. Fifty five percent of respondents say there are significant differences of opinion among leadership on how to balance short-term considerations with long-term investments and sustainable growth. That figure jumps to 68 percent of board chairs and non-executive board directors.

The survey, which polled 200 senior leaders from 15 European countries and 25 industries found a tension between the advantages of ESG-driven corporate strategy to long-term, inclusive growth and leaders’ willingness to support this through corporate governance. Sixty six percent of leaders combined see the top two advantages to integrating ESG factors in their corporate strategy as first, long-term value through new ESG-driven products and services, and second, resilience to ESG risks. Eighty three percent of respondents said they would like mandatory reporting of ESG performance measures against global standards.

The majority (82 percent) of respondents feel they have made significant progress in putting in place the controls and risk management systems needed to address material ESG risks. The top two challenges holding businesses back from delivering against ESG according to respondents are externally, near-term economic uncertainty (85 percent) and internally, lack of commitment from the board (43 percent).

Julie Teigland, EY EMEIA Area Managing Partner, says: “We’ve reached a crossroads in the ESG agenda. The evolution in how businesses and their stakeholders consider this topic has been accelerated by the COVID-19 pandemic as has industry engagement with COP26 and commitment to support climate goals. Expectations of businesses have risen from across society, from customers to employees, policymakers to investors. At the same time, inside companies, executives are coming through who are passionate about making a difference to the planet and people and about building their organizations’ resilience. Breaking the barriers companies face in establishing ESG as part of their corporate strategy is the next step. These agendas that unlock long-term value must be tied to governance initiatives that focus on collaboration.”

The analysis claims that if companies are to be successful in harnessing ESG-related opportunities, boards must strengthen their governance with a new board operating model, composition, and skills; innovative approaches to reward and remuneration; and effective ESG reporting and investor engagement.