In his 2021 Letter to CEOs, BlackRock CEO Laurence Fink emphasized the importance of board oversight of company climate-change strategy. See BlackRock Calls for Disclosure and Board Oversight of Company Plans for the Net-Zero Economy. However, a recent study raises questions about the level of director expertise in climate and other environmental, social, or governance (ESG) areas. Tensie Whelan of the NYU Stern Center for Sustainable Business analyzed the credentials of the 1,188 Fortune 100 directors, based on their publicly available biographies. In U.S. Corporate Boards Suffer from Inadequate Expertise in Financially Material ESG Matters, Professor Whelan reports that 29 percent of these directors had relevant ESG credentials, although their experience was heavily weighted toward social issues – 21 percent of board members had relevant experience with issues that comprise the social, or S, element of ESG, while only 6 percent had E (environmental) or G (governance) expertise. (Some directors had credentials in more than one area.) In the specific environmental area of climate, only three of the 1,188 board members had relevant experience. The industries with the greatest number of directors with ESG expertise were Health Care: Pharmaceuticals, Biotechnology & Life Sciences; Utilities; Consumer Staples: Household & Personal Products; and Telecommunication Services. Those with the lowest ESG relevant representation were Consumer Discretionary: Media; Consumer Discretionary: Retailing; and Industrials: Transportation.
It is far from clear that an educational credential or professional experience in some facet of ESG is necessary for a board member to effectively oversee a company’s policies, practices, and disclosures with respect to such matters as climate change, human capital management, supply chain integrity, relations with the communities in which it operates, or other aspects of ESG. Nonetheless, given the current interest in the risks and opportunities ESG issues present for companies, it is quite possible that ESG expertise may join the list of desirable attributes that boards consider in recruiting new directors. Particularly if ESG disclosure becomes mandatory, experience with these issues may also become a plus factor for audit committee members.
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