Why we need more women driving ESG at board level – and fast

Women are crucial to maintaining ESG engagement at board level, says The Sustainability Board’s Frederik Otto – as data shows ESG momentum stagnating

ESG is an Evolving Situation on the Ground. That is why it is important to measure and track data, to identify trends and ultimately deliver progress.

Independent think tank The Sustainability Board (TSB) has been doing just that for five years, promoting sustainable leadership and corporate governance through insightful reports – including The Sustainability Board Annual ESG Preparedness Report.

The report – supported by Chapter Zero, The Directors’ Climate Forum – examines how Environmental, Social, and Governance (ESG) matters are handled at board level.

TSB evaluates boards performance when it comes to ESG, and analyse board diversity and director engagement on sustainability topics.

One of the five main data points covered in the report shows that women remain at the forefront of sustainability governance.

While this is nothing new, according to previous annual reports from TSB, it again highlights the pivotal role of women, and the need for more women in the boardroom.

“Our data yet again underscores the pivotal role of women leading ESG engagement,” says Jeannette Lichner, Senior Advisor, The Sustainability Board

“Their consistent involvement outpaces their male peers, emphasising the need for more inclusive boardrooms. We do not assess diversity beyond gender but recommend that boards also consider directors of different ethnic and socioeconomic backgrounds. They often bring new ideas and experiences to the table.”

Diving deeper into the data, women are now 13% more likely than last year's 24% to be part of a relevant committee, and are 64% more likely to be engaged in ESG than their male counterparts. This is a slight increase from 60% the previous year.

Women make up 35% of directors on ESG committees globally, slightly higher than the 32% gender diversity average on boards.

The Sustainability Board Annual ESG Preparedness Report shows that women remain at the forefront of sustainability governance

“Our data yet again underscores the pivotal role of women leading ESG engagement,” says Frederik Otto Executive Director, The Sustainability Board

“Their consistent involvement outpaces their male peers, emphasising the need for more inclusive boardrooms. We do not assess diversity beyond gender but recommend that boards also consider directors of different ethnic and socioeconomic backgrounds. They often bring new ideas and experiences to the table.”

Diving deeper into the data, women are now 13% more likely than last year's 24% to be part of a relevant committee, and are 64% more likely to be engaged in ESG than their male counterparts. This is a slight increase from 60% the previous year.

Women make up 35% of directors on ESG committees globally, slightly higher than the 32% gender diversity average on boards.

Women's higher level of ESG engagement matters.

Recent research shows companies with more women on their boards are more likely to be on track to meet global climate goals. The study, by asset manager Arabesque, found the most diverse 20% of the world’s 10k000 biggest companies were more aligned with a goal of capping global warming at 1.5C.

Conversely, 37% of the firms in the least-diverse 20% of companies were headed towards a worst-case 2.7C trajectory or above, and most did not disclose any meaningful data, the research showed.

The Sustainability Board's Frederik Otto says the improvement trend of ESG engagement in the last five years is starting to lose momentum

ESG engagement stagnating – more women needed

While sustainability governance is increasing ‘on paper’ and most boards are embracing ESG in their board policy, ESG engagement of directors is stagnating, The Sustainability Board's ESG Preparedness 2023 report finds. 

From 2019 to 2022, the report says ESG engagement levels from directors rose dramatically from 16% to 45%, but 2023 data shows a drop to 43%.

“The improvement trend of ESG engagement in the last five years is starting to lose momentum. At this critical time of action and implementation, stagnation is the worst enemy,” says Otto.

Given the level of women’s engagement in ESG, which outpaces male peers, increasing female board members is an obvious solution – but others include ensuring board members have a deep understanding of issues. 

TSB recommends three steps that boards need to implement – identify, assess, and monitor.

Identify – what the main sustainability issues are and who within the board is engaged with ESG. Women are driving the sustainability agenda, but still underrepresented on most boards. By increasing female representation, businesses can enhance their commitments.

Assess – board directors need a deeper understanding of sustainability issues and trends. Directors may need to upskill and keep track of the latest ESG thinking.

Monitor – consider having a third-party assessment of ESG efforts, adopt sustainability KPIs, and consider convening the board more often to tackle what is an urgent and evolving ESG situation.

Increasing gender diverse boards 

While women make up 32% of boards globally, on average (34% in the US) – in some regions, like Asia, numbers are much lower.

The latest data from the OECD showed that the share of women board members remained below 20% in India, Japan, Mainland China, and South Korea. Boards of China’s 100 most valuable companies have jut 14%.

When it comes to improving gender board diversity, mandating quotas can work. While not everyone agrees with quotas, more countries and companies are issuing gender balance directives to ensure more diverse leadership. 

Last year, the EU issued a new directive to boost women’s participation in senior roles. Across listed companies, it stipulates that women must hold at least 40% of non-executive director positions, or 33% of total director positions (non-executive and executive) by 2026.

Hong Kong and South Korea have implemented mandatory diversity quotas, requiring at least one female on the board of public companies – and in 2021 Hong Kong Exchanges and Clearing Market brought in rules that ban single-gender boards. Representation rose from 13.7% to 17.1% just six months after launching.  

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