A heterogeneous board performs better on ESG criteria

From a recent study E&S friendly board, conducted by Diligent and the Esade Center of Corporate Governance, shows that listed companies that value new talent, think innovatively and have a modern approach to boardrooms, achieve better environmental and social performance. This shows that companies that want to prioritize environmental aspects and sustainability should ‘shake’ their boardrooms and pay attention to more diversity.

The study compared the E&S performance of 5,295 companies in 50 countries with the activity and composition of their boards and found that the companies with the best overall performance in terms of age, gender and nationality had the most diverse boards. The data also showed that in all these countries, on average, only 25% of all posts are filled by women, and that the minimum average age of drivers was 51 years and the maximum average age of 72 years. It shows that more needs to be done in terms of gender and age diversity to improve overall E&S performance. In the Netherlands, the overall picture is roughly the same, with the same percentage of women on the board, with an average minimum age of 47 with 69 years as the maximum average.

Boardrooms must strive for more diversity and dynamism

Women make governance stronger

Boardrooms should strive for greater diversity and dynamism to promote a variety of thoughts and opinions, unique experiences and skills. For example, only 13% of board members in the Netherlands currently see technology as an essential skill for any business in an increasingly digital world. In general, boards with a higher average percentage of women had a higher degree of expertise in areas such as management, finance, technology and corporate governance. This leads to the conclusion that more women in leadership positions means stronger leadership.

Better financial results

Boards with a broader age group promote diversity of thinking, expertise and innovation. This enables companies to adapt to the pace of change in society and generally leads not only to better environmental and social sustainability but also to better economic outcomes.

However, it is not just about diversity. Other management practices that have been shown to have a positive impact on E&S include the involvement of a single coordinating independent director, provided that independence is not compromised by significant seniority, and larger boards, as long as they are not excessive. In the Netherlands, the average board size is 9, which means there could be room for companies to grow their boards to achieve better E&S practices. Management is also better if there is a CEO in place.

“It’s a must for boards to tackle E&S challenges with innovative and fresh ideas.”

Sustainability Committee

One thing that any company with ambitious ESG goals should implement is the establishment of a sustainability committee, as it has been shown to improve environmental and social performance. In the Netherlands, however, only 10% of companies have set up a sustainability committee.

Hajo Jansen, Regional Vice President Europe at Diligent: “The world is increasingly connected, many Dutch companies are active internationally. They continuously interact with a multitude of cultures. Then it is a must for boards to tackle E&S challenges with innovative and fresh ideas. Diversity of nationalities, gender, age and major boards all have a positive impact on environmental and social performance. This shows that a different approach to board meeting is needed. Companies must approach it from a new perspective, otherwise they risk being left behind in a rapidly changing world. ”

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