Linking performance to ESG supervision?

Companies with a stand-alone environmental, social and governance committee at the board level tend to have higher ESG scores according to research by NN Investment Partners, the Dutch fund manager, and governance services provider Glass Lewis.

The joint study “Exploring the links between ESG supervision and performance” also found that companies that do not disclose details of their supervision of ESG risks and opportunities had the lowest ESG scores.

An increasing number of companies are establishing a board-level committee to oversee ESG aspects of their business. Although they are not as common as audit, remuneration or nomination committees, they have attracted interest from sustainable investors.

European and US companies  have stand-alone ESG committees at the board level more often than companies based elsewhere, according to the research. However, the quality of disclosure is stronger in Europe than in the US, where the report said reporting requirements are laxer and many companies seem to take a “legal minimum” approach to disclosure.

Companies in sectors susceptible to greater scrutiny of ESG issues, such as the energy sector, were also more likely to have stand-alone or combined ESG committees.

The analysis covered 129 companies and their ESG performance in 2020 based on NN IP’s ESG Lens, a proprietary tool that uses a range of data points to give a company a single ESG score. The ESG Lens performance of each company was divided into quartiles, with the lowest performers making up the bottom and the highest performers comprising the top.

The report said: “While using a single year’s ESG score has clear limitations, this report suggests some useful insights and represents a departure point for further research. In addition to the study’s findings, it presents background on the develop- ment of ESG awareness in the corporate world, a look at how the regulatory landscape is evolving, and the current state of research on the topic.”

©Markets Media Europe 2021
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