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PwC survey: more than half of executives lack understanding of ESG strategy or risks

PwC's recently released annual Corporate Directors Survey, most corporate boards do not have a good understanding of their companies' ESG risks

According to PwC's recently released annual Corporate Directors Survey, most corporate boards do not have a good understanding of their companies' ESG risks or the company's ESG strategy. Although ESG is starting to feature in key risk management practices, important topics such as human rights and climate change rarely feature in board discussions.

PwC reports a significant difference in ESG focus between larger and smaller companies. While 73% of directors at companies with annual revenues of more than $10 billion said ESG is linked to corporate strategy, only 40% at companies with revenues of less than $1 billion said something similar. For the survey, PwC interviewed 704 board members of companies from more than 12 industries. 72% of those surveyed represented companies with annual sales of more than $1 billion, and 64% had been on the board for more than five years, ESG Today reports.

The survey found that boards continue to increase their focus on ESG issues, with 55% of directors reporting that ESG issues are regularly on their board's agenda, up slightly from 52% last year, and from just 34% in 2019. Importantly, ESG is more integrated into company-wide risk calculations. 65% of directors say ESG is part of corporate risk management discussions.

Despite the increasing focus on ESG risks, boards do not seem to have a sufficient grasp of important related issues. Only 27% reported that their board understands ESG risks 'very well', 42% reported this level of understanding for their company's overall ESG strategy, and 24% for ESG opportunities. While almost half reported a good understanding of the company's diversity and inclusion efforts, only 16% reported this for climate risks and strategy. Only 15% reported a good understanding of internal controls and processes around ESG data collection.

The report shows that ESG-related topics receive the most attention in the boardroom, such as data security and talent management, with more than 90% of executives reporting that their board discussed each topic "substantially" or "somewhat" in the past 12 months, as did board composition, at 86%. However, key emerging topics received less attention: only about half have discussed climate change or carbon emissions with this frequency in the past 12 months, less than a third discussed human rights and only 30% discussed companies' political activities.

Interestingly, one of the main topics of discussion, reported by almost 75% at the 'substantially' or 'somewhat' level, was the use of non-financial measures in executive remuneration schemes. 92% of directors agreed that attention to non-financial measures is appropriate. Female respondents were more likely to favour ESG indicators in remuneration schemes, including diversity and inclusion - 73% compared to 45% for men - and environmental targets - 40% compared to 30% for men.

Click here to access PwC's 2022 Annual Corporate Directors Survey