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Board behavior excels on environmental and social Issues but falls short on climate change and human rights – where does your board sit?
May 29, 2014
According to a new study released by the US-based Investor Responsibility Research Center Institute (IRRC) in April, corporate boards are exceeding legal oversight requirements on environmental and social issues, with more than half of S&P 500 companies providing board level oversight of environmental and/or social issues above and beyond that required by law. The findings are based on a review of committee charters and sustainability reporting conducted in the final quarter of 2013.
The clear leaders in this space were, not surprisingly, those industries that are highly regulated and have the greatest exposure to risk. Most likely to have board oversight were companies found in the paper and forestry sector (100%), healthcare services (93%), oil and gas (81%), utilities (80%), and aerospace and defense (80%). On the lower end of the sustainability oversight scale were companies in retail (34%,technology hardware (33%), construction and engineering (33%), and real estate (33%).
The study also shows that board oversight varies across a range of issues, again tied to which are most likely to be under close public scrutiny in each sector. Eighty percent of boards in the aerospace and healthcare sectors are likely to be involved with the oversight of political spending, whereas 100% of the boards of paper and forestry companies and 73% of chemical companies were concerned with environmental issues.
An anomaly was found in the retail sector, which is the fourth least likely to have board oversight on sustainability issues, despite the fact, as the authors explain, that the industry has been under fire on issues ranging from sweatshops to recycling practices. While 33% of apparel and footwear manufacturers reportedly have board oversight in the area of human rights, only 3% of retailers who distribute these goods felt it necessary to elevate these issues to the board level. Similarly, relatively few technology hardware and software companies (5%) had board oversight on human rights issues, despite the recent requirement in the US to more fully disclose supply chain practices and, more specifically, the sourcing of materials from conflict minerals regions in Africa.
Overall, the boards of S&P 500 companies are most likely to be concerned with “social issues” (55%) and political spending issues (42%). They were least likely to be explicitly concerned over climate change (2%) and human rights (4%).
Other high level findings of the study include:
• Boards of 55.4 percent of S&P 500 companies have explicit oversight responsibilities for social and/or environmental issues.
• About a third of the companies with board level oversight of sustainability issues have assigned that responsibility to the Corporate Governance and Nominating Committee (34%) and about the same amount assigns it to a Public Affairs or Sustainability Committee (32%). The remainder places the responsibility in other committees or delegates it to the board as a whole.
• Social issues (55 percent) were more often covered by board oversight structures and policies than environmental topics (33 percent). One reason may be that 42% of the S&P 500 companies have their board monitor political spending.
• Most companies with board oversight of sustainability issues have established independence standards for those committees (81 percent) and permit them to hire outside counsel, advisors and experts at their sole discretion (92 percent). However, only five percent had set explicit sustainability expertise standards for members of these committees.
• There was a strong correlation between company size, as measured by revenue and net income, and the rate of board oversight of sustainability issues. Top quintile companies by revenue were more than three times more likely to have board oversight of environmental and/or social issues than those in the bottom quintile.
To read the full study click here.