Audit Committee Leadership Network, March 2021
Investors have long cared about the sustainability of their portfolio companies, and climate and diversity have concerned investment managers for many years. But recent social events and the onset of COVID-19 have sharpened their focus and spurred investors to demand action from the companies they hold. Many of the largest asset managers now assert that environmental, social, and governance (ESG) issues are an important driver of financial performance and that companies’ ability to integrate ESG into strategy is key to creating long-term value for the investors’ shareholder clients. Actions today will affect companies’ ability to respond to risks and to pursue transformative opportunities.
Consequently, investors are pushing both for quantifiable action on climate risk and diversity and for disclosures that reveal how companies are addressing these concerns. For those companies that fail to keep pace, investors are signaling their readiness to take action through votes on directors and shareholder proposals, or, if necessary, through divestment.
All of this is increasing ESG’s importance on the agendas of public company boards. One audit chair said, “Three years ago, we barely mentioned ESG; now we talk about it in every board and every audit committee meeting.” For boards, managing the growing number of investor requests raises important questions about current reporting standards and frameworks, target setting, and engaging with investors on ESG matters.
On March 9, 2021, members of the Audit Committee Leadership Network (ACLN) were joined for a discussion of investor perspectives on ESG reporting and targets by Sandy Boss, BlackRock’s global head of investment stewardship and member of BlackRock’s global executive committee; Bill McNabb, former CEO of Vanguard; and Mark Mandel, vice chair and portfolio manager at Wellington Management.