The pandemic in 2020 shone a spotlight on how companies address environmental and social challenges, including what it takes to be responsive and adaptable when facing a crisis; the pandemic showed in particular how ready — or not — companies are in terms of risk and particularly climate change, according to research from S&P Global Ratings. “The pandemic has heightened the need for effective crisis management and has emphasized the importance of stronger board engagement in and oversight of ESG issues,” writes analyst Bruno Bastit in a new report.
The report highlighted a number of ESG trends organizations will see in 2021:
—Diversity will continue to dominate the corporate governance agenda, such as increasing female participation in leadership roles.
—Boards will face increasing pressure to improve ESG competence and demonstrate the skills needed to prepare for and navigate other challenges such as climate change.
—Closer integration of ESG metrics with executive pay will gather pace. This will ensure a longer-term focus on and alignment of interests between companies and their executives, shareholders, and ultimately society.
—There will be a heightened focus on board effectiveness, with increasing pressure to limit the number of external mandates a director can have, and help ensure full dedication to the boards on which they serve.
—We will see greater shareholder activism on environmental and social issues, spurred mainly by the Say on Climate initiative.
—Governments and regulators, as well as society broadly, will continue stepping up demands for better disclosure about where and how companies pay taxes.
“This year is set to be yet another atypical one where boards are going to have to balance secular changes to how they operate, with the short-term pressures stemming not just from the financial upheaval of the pandemic but the broader societal challenges it has created,” states the report. “The transition to a more stakeholder-focused economy and addressing systemic crises (climate change uppermost) could require a rethink of governance. This may lead to more diverse boards, with the right set of skills to understand environmental and social issues, and building a new system of executive incentives inclusive of environmental and social metrics to achieve a better alignment of corporate and societal needs.