Hannah Orowitz, Managing Director, Corporate Governance, Georgeson
The increased emphasis on environmental, social, and governance (ESG) concerns is something that should be on the minds of all directors, not a select few who are chosen for a special committee. That’s according to Hannah Orowitz, Managing Director, Corporate Governance, at Georgeson, who spoke to CorpGov in an interview. Ms. Orowitz also noted that directors are increasingly discussing ESG issues directly with investors, particularly at organized events. She also pointed out that newly-created ESG committees don’t seem necessary, though third-party advice may become important over time. The full interview is below:
CorpGov: Do you believe that directors are engaging personally with investors on ESG issues or are companies responding more to formal proposals?
Ms. Orowitz: We believe that more companies are including one or more directors in their engagement activities with shareholders. The choice of which director to include may depend on the topic the issuer and investor intend to discuss. Further, investors are making efforts to deepen dialogues with directors beyond company-specific engagements.
For example, this year BlackRock, Inc. held its second annual Director Dialogue to discuss governance issues with directors from more than 30 different companies.
Outside of these formal engagement activities, it’s more difficult to tell how often individual directors are engaging personally with investors, although it seems unlikely that this is common.
CorpGov: Are boards assigning responsibility for ESG issues to specific directors?
Ms. Orowitz: While some company boards may contain one or more individuals with expertise on ESG matters, all members of a company’s board of directors have a general fiduciary duty to oversee the company’s strategy, including its approach to ESG issues.
Some boards form dedicated standing committees to assist in fulfilling board oversight responsibilities on sustainability matters. Other boards explicitly include sustainability oversight within an existing standing committee’s responsibilities.
While S&P 500 companies average around four standing committees (over and above the three NYSE-mandated committees of compensation, audit, nominating or governance), topics covered by those committees will vary depending on the company’s needs.
CorpGov: Are specific directors or committees handling political issues or is it being done by boards as a whole?
Ms. Orowitz: Each board oversees ESG issues according to its own needs and circumstances. The approach to political issues echoes the approach on ESG matters, as outlined above.
CorpGov: Do you believe that some of these ESG issues are likely to prompt the creation of new board committees?
Ms. Orowitz: So far it seems that new board committees are not necessary in most cases. Spencer Stuart’s most recent review of standing committees among S&P 500 companies noted a slight decrease between 2013 and 2018 in the number of public policy and/or social and corporate responsibility committees.
As companies evolve their sustainability practices, they may need more advisory or third- party expertise to implement and measure metrics, such as those advocated by frameworks that are offered by the Sustainability Accounting Standards Board or the Task Force on Climate-related Financial Disclosure.