Some 73 major U.S. companies recorded material hits to earnings from extreme weather events in one year, while supply-chain disruptions from climate change jumped 29% over the past six years.
Those are just two of the handful of findings from sustainable investing advocate Ceres in a report Wednesday that urges corporate boards to care more about environmental, social and governance issues or face increasing risks to financial performance.
The report, meant as a best-practices guide for boards and steered by Veena Ramani, Ceres’ senior program director for capital markets systems, stressed the responsibility that boards hold for multiple constituents, including shareholders and the company employees.
The pool of potentially impacted investor funds from ignoring ESG is nothing to take lightly, Ceres reports have shown. A separate recent study of 500 large global companies estimated that potential financial implications from climate change-related factors could put nearly a trillion dollars at risk.
In the U.S., shareholder support for climate-related resolutions at the companies they invest in hit an all-time high of 30% in the latest proxy filing round but whether companies are fully responding to investor-driven ESG demands remains a mixed picture at best.
Earlier this month, the Securities and Exchange Commission proposed two long-anticipated rules that seek to limit shareholders’ influence over how companies address contentious issues such as climate change and executive compensation.
Beyond the regulatory climate, ESG-linked uncertainties and opportunities are likely to persist and boards must prepare; already 1,000 corporate lawsuits related to climate change impacts have been filed in the U.S., Ceres said.
Areas of recommendation in Wednesday’s report include formalizing ESG efforts rather than employing loose goals toward this end and adhering to complete disclosure in financial filings of material ESG risk.
The report offered evidence that some boards have already accepted their evolving responsibility. Prudential Financial, an insurance and financial services company, for instance, has included expertise in environmental/sustainability/corporate responsibility in its board selection matrix. In another example, PepsiCo PEP, -0.62% incorporates environmental sustainability criteria into its capital-expenditure filter, which is applied to all capital expenditure requests over $5 million.
The ESG report also stressed statistics that point to renewed attention on a younger workforce (86% of millennials would consider less pay to work at a company whose mission aligns with their values) and the changing demands of socially-conscientious consumers (47% of consumers walk away from brands that don’t align with their beliefs).