Good morning and thank you for the invitation to speak today at the Society for Corporate Governance 2021 National Conference. I’m impressed with your full and informative agenda over the next few days, and I appreciate the important work you do in supporting company boards and executives. 

I also appreciate your engagement in the SEC’s policymaking process, including your recent letter in response to the request for public input on climate change disclosures. In fact, we’ve received thousands of comments in response to that request, but we hardly need that statistic to understand that the subject of climate risk and our financial markets, and ESG more broadly, is top of mind in board rooms and c-suites around the globe.

Increasingly, boards of directors are called upon to navigate the challenges presented by climate change, racial injustice, economic inequality, and numerous other issues that are fundamental to the success and sustainability of companies, financial markets, and our economy. This call, welcomed by some and eschewed by others, is attributable in part to the large and growing influence that corporations hold over the social and economic well-being of people and communities everywhere. A study from 2018, for example, showed that 71 of the top 100 revenue generators globally were corporations while only 29 were countries. In other words, corporations – in many cases U.S. corporations – often operate on a level or higher economic footing than some of the largest governments in the world. That is a dynamic worthy of reflection – and one that drives home the weighty consequences and obligations associated with some corporate decisions.

Small wonder, then, that not just investors, but employees, consumers, vendors, suppliers, and numerous other stakeholders, look to companies to design and implement long-term, sustainable policies that support growth and address the environmental and social impacts these companies have. And these expectations increasingly play out in ways that were far less a part of the corporate consciousness just a decade or two ago. Today, what your business does and says is as likely to be dissected on Twitter and TikTok as it is to be reported in the Wall Street Journal or over a newswire. Consequently, consumers, employees, both current and potential, and a host of others can affect how companies are perceived and how well they succeed. 

I know many in this virtual room, including those on boards of directors, understand this dynamic. And understand that these environmental and social issues, once perhaps treated as more peripheral, are now central business considerations. So boards are stepping up their engagement on climate and ESG related-risks and opportunities. For instance, in one recent survey, nearly 80 percent of directors reported that their boards are focused on some aspect of ESG. An analysis of a selection of S&P 100 proxy statements found that 78 percent of companies had at least one board committee charged with overseeing environmental sustainability matters. And 42 percent of companies reviewed in that analysis associated at least one director with expertise in environmental policy, sustainability, corporate responsibility, or ESG. At the same time, while many companies report that they oversee ESG at the board level, some analysis suggests they may lack specific sustainability mandates and do not demonstrate board-management engagement on ESG. In addition, there are some indicators that reported board expertise on ESG may be ill-defined and still lacking. There is more work to be done.

Because, in the words of prominent corporate attorney Marty Lipton, “a corporation ignores environmental and social challenges at its own peril.”

Continued