Economic uncertainty is driven by a range of concerns, such as geopolitical instability, inflation and talent shortages. It is also likely that the COVID-19 pandemic will continue to make its presence felt in the long-term, as we learn to live with its “long-tail” effects. Overall, the impact of the pandemic – and the clearer understanding it has given us of the devastating impact of black-swan events – have raised concerns about the challenges of delivering long-term value when there is so much uncertainty about the future economy and potential disruption.
Challenge two: How to generate long-term value when the board’s role in ESG is still evolving
To unlock the value of a company’s ESG agenda, a clear-sighted focus on the long-term is critical. Boards play an essential role in aligning ESG initiatives with the strategic direction of the company, ensuring it is focused on material topics (both risks and opportunities), establishing targets and accountability, and assessing the company’s performance at a company-wide level. While ESG implementation will be devolved to individual business units, boards play a central role in establishing a clear strategic direction, focusing on the long-term, and developing a plan to avoid fragmentation and duplication.
However, the research shows that the board’s role in ESG is still evolving and that there is a need to strengthen the role of the board in ESG strategy. As Figure 4 shows, the major internal challenge facing companies today when it comes to generating long-term value through a strong ESG proposition is “lack of commitment from the board to make decisions that fully integrate ESG factors and create long-term value”. Today, 43% of respondents identify this as a significant challenge, up from 28% in 2021.