News analysis
Half of boards don’t have KPIs to measure ESG
47% of boards do not have KPIs in place to measure their ESG progress, and 79% don’t integrate ESG metrics into the compensation of their executive directors, according to a report released by Diligent and the IoD in Ireland.
KPIs to measure ESG
In the State of ESG Strategy in Irish Boardrooms report, 58% of respondents indicated that ESG is overseen at the board level – an increase from 46% in 2021.
23% of Irish boards say that ESG is discussed at every meeting.
However, despite ESG being a clear item on the boardroom agenda, 47% still need KPIs to measure progress.
Of the organisations that have implemented KPIs around ESG, the majority indicated that it was challenging to implement these measures.
“It is positive to see that ESG is becoming increasingly important to Irish boards, but more support is needed to ensure directors are better equipped with the skills and knowledge to oversee an ESG function,” says Dottie Schindlinger, executive director of Diligent Institute.
“With mounting pressure from regulators, investors and shareholders, directors and corporate leaders need access to information tailored specifically for them, to help focus on what is important for corporate strategy.”
All directors must get up to speed on ESG
Embracing ESG is not just about targets and legislation requirements but also values.
All directors must get up to speed on the essentials of ESG and what this means for their business, their sector and, indeed, wider society.
This new research reveals the importance with which ESG is being regarded in boardrooms.
Setting realistic and accurate KPIs to measure ESG successes or failures will lead to real traction and change in reaching ESG targets.
Read more: US firms ties ESG to executive pay
Among the top report findings are:
- There is a desire for education around ESG – One-third (34%) of respondents say they have undertaken ESG director training in the last 12 months, while 63% have not. However, 50% indicate they plan to undertake ESG Director training in the next 12 months. Most (75%) say all board members should share the ESG skill set.
- Complete board oversight of ESG has increased – 58% of respondents indicate that their entire board has primary responsibility for ESG oversight, compared to just 46% in 2021. This figure increases for the financial services sector, with 78% noting board oversight. By comparison, 32% of respondents indicate their CEO oversees ESG.
- ESG is being discussed frequently – Nearly one-third (31%) of respondents indicate that their board discusses ESG quarterly, while 23% say ESG is discussed at every board meeting.
- Boards find it challenging to implement KPIs around ESG – There is an equal split (47%) between boards with ESG KPIs in place and those without. Of those with KPIs in place, six out of 10 find it challenging to apply ESG-related KPIs, which may, in part, be due to the level of awareness and understanding of current and upcoming legislation.
- Many boards are not integrating ESG KPIs into compensation – 79% of respondents have not integrated ESG metrics into the compensation of their executive directors. In comparison, 81% have not done so concerning senior management compensation. Despite this, 52% and 56% believe that compensation for executive and senior directors should be linked to ESG-related metrics.
- Most boards do not incorporate ESG experience into their organisations’ skills matrix to identify new board candidates – 29% indicate their organisation includes ESG expertise when identifying new board members, with 33% noting they currently do not. This increases among public sector organisations, with 38% flagging ESG skills sets when finding new directors.
- More government support is needed – There is almost an even split between respondents who are aware (49%) of Ireland’s Circular Economy Act (passed in August 2022) and those who are not (51%). Of those who are aware, 75% say that the Irish government should provide more support to businesses to encourage the adoption of the Act.
- Some feel European Union legislation around ESG lacks clarity – Only 21% of respondents rate their understanding of the EU Corporate Sustainability Due Diligence Directive as good/excellent, with 24% rating the same for their understanding of the EU Corporate Sustainability Reporting Directive, and 20% of the EU Taxonomy for Sustainable Activities.
Read the full report here.
