Private Company Boards Need More Independent Directors – Sustainability Offers a Win-Win Solution

Sustainable LeadershipSustainabilityPrivate CapitalSustainability OfficersBoard Director and Chair Search
min Article
Kurt Harrison
February 15, 2022
5 min
Sustainable LeadershipSustainabilityPrivate CapitalSustainability OfficersBoard Director and Chair Search
Executive Summary
Adding independent directors with sustainability mindset is a win-win solution to accelerate value creation and promote sustainable growth.


As predicted, 2021 ended up being “the year of ESG” as CEOs and corporate boards around the world stated their commitment to long-term sustainability goals. Whether driven by investor pressure, brand concerns, risk management, or a sincere belief in the potential for longer-term value creation, sustainability targets were announced to great fanfare throughout the course of 2021. With the new year now in full swing, the sustainability focus needs to shift to determining how exactly these commitments will be fulfilled. The conversation this year will be around how to achieve the measurement, reporting, and integration of stated sustainability commitments. As such, 2022 is shaping up to be “the year of ESG integration.


“The decarbonizing of the global economy is going to create the greatest investment opportunity of our lifetime. It will also leave behind the companies that don’t adapt.”

BlackRock CEO Larry Fink’s 2022
Letter to CEOs


Pressure on public company boards to deliver against these sustainability commitments continues to increase and intensify. Most recently, the CEO of State Street Global Advisors, Cyrus Taraporevala, wrote a strongly-worded letter to all of his portfolio company CEOs that is causing reverberations in both public and private company boardrooms. With over $3 trillion in assets under management, SSGA is an incredibly powerful player in driving ESG integration. Taraporevala announced a major shift in their proxy voting agenda for this year, saying “our main focus in 2022 will be to support the acceleration of the systemic transformations underway in climate change and the diversity of boards and workforces.” He adds “it is essential that boards understand their companies’ pathway to net-zero,” and says that “we will start taking voting action against directors across applicable indices should companies not meet these disclosure expectations [for Scope 1, 2 and 3 emissions].” He concludes by saying “in 2023, we will hold companies and directors accountable for failing to meet these expectations.”1

Scrutiny of private companies is rising – and they are ill-prepared

This pressure is now being felt within private companies as well, especially those backed by private equity firms. Many critics have argued that the lack of transparency in private company reporting has allowed these portfolio companies to continue to operate without disclosing their carbon emissions footprint. As the wall of global capital continues to surge into private equity funds, investor scrutiny of their portfolio companies will only increase. Most private equity firms actively expanded their ESG measurement and reporting teams and frameworks in 2021. However, according to MSCI, of the 10 largest global private equity firms, only one – EQT – actually discloses their portfolio company emissions.2

As sustainability has become a crucial component of good governance, private company boards find themselves ill-equipped to deal with the non-financial considerations of ESG. Few if any of the CEOs and private equity deal partners sitting on portfolio company boards could be considered ESG-fluent, and this lack of expertise will not only detract from long-term value creation, it can also prevent a successful exit for the PE sponsor. If the private equity owners intend for these companies to IPO, having a credible ESG framework is now a fundamental requirement. This means adding an ESG fluency to the board and building an internal measurement and reporting capability to satisfy institutional investors.

Public company boards get higher scores from their executive teams than portfolio company boards when it comes to embracing ESG

In our recent Global Leadership Monitor survey of more than 1,300 global leaders, public company executives reported greater confidence in their supervisory board’s ability to embrace the opportunities of ESG than their portfolio company peers.

Confidence in supervisory board effectively embracing opportunities of ESG


RRA 2021 Global Leadership Monitor, n = 1,327 global executives 

Sustainability has become a globally transformational theme, much like “digital transformation” a decade ago. However, evolution in the boardroom has lagged, as truly integrating ESG requires a culture shift in the mentality and composition of boards. C-suites and boardrooms around the world are now far more focused on the “E” and the “S” than ever before. However, very few would say they have successfully embedded environmental or climate expertise into their leadership structures, and even fewer would say they are fluent on social issues. For example, analysis by the NYU Stern Center for Sustainable Business shows that ESG credentials are almost non-existent amongst Fortune 100 board members. Only 1.2 percent have relevant credentials in the energy space, and even fewer have credentials in other areas including ESG investing and environmental law.3

The 2021 Sustainability Board Report highlighted this even further: while 71 percent of companies had sustainability/ESG committees, only 40 percent of the directors on those committees were actually “ESG conscious” 4, which the Report uses as a measure of overall sustainability knowledge, attitudes and behavior. Notably, the number of directors who met the definition of “ESG competent” – a higher bar measuring the capacity to enable effective, embodied action – is far lower.

Independent directors will be key to progress

Corporate boards for private equity-backed portfolio companies have historically been populated by executives of the company and principals from the PE sponsor. As a result, the vast majority of these boards lack independent directors, and are missing out on the industry expertise, leadership and global perspectives these directors can provide. Research has shown that independent directors provide an important governance mechanism that leads to improved board effectiveness.5  The best way to improve board effectiveness is to update board composition; and the fastest way to improve board composition is to increase the number of independent directors, which studies have shown leads to greater transparency and improved financial performance.6  However, only 25 percent of private companies have independent directors, and that percentage is even lower for private equity-backed companies.7


“Today’s boards are just not equipped to deal with today’s challenges. They don’t reflect the real world anymore. The world has moved on, and, frankly, many of the boards have not moved on…in ESG knowledge. We have a problem…that with the urgency that we need to act right now, boards might become a bottleneck.”

Former Unilever CEO
Paul Polman


It seems clear that private companies would benefit in many ways from adding independent directors to their boards. In determining the criteria for these independent directors to be immediately accretive, targeting senior executives who possess both a track record as high-performing business leaders and ESG awareness seems to offer an excellent way to address multiple needs at once. Many private companies are leading by example in this regard: Liberty Mutual recently added the world-renowned ESG expert George Serafeim to their board as an independent director; and Sphera Solutions added the former Chief Sustainability Officer from General Motors, Dane Parker, to their board. These directors offer both hands-on expertise as sustainability practitioners, as well as the requisite credibility as business leaders to avoid being marginalized in the boardroom as “the sustainability director.” As privately held companies seek to accelerate their value creation in a world focused on sustainable long-term growth, adding independent directors who can deliver sustainability expertise is a win-win solution.


1 Cyrus Taraporevala, “CEO’s Letter on Our 2022 Proxy Voting Agenda,” State Street Global Advisors, January 12, 2022
2 Linda-Eling Lee, Meggin Thwing Eastman, “2022 ESG Trends to Watch”, MSCI, December, 2021
3 Tensie Whelan, “U.S. Corporate Boards Suffer From Inadequate Expertise in Finacially Material ESG Matters”, NYU Stern Center for Sustainable Business, January, 2021
4 Frederik Otto, Nicolas Alexander, Tias van Moorsel “The Sustainability Board Report 2021”, The Sustainability Board Report, 2021
5 Naciti, “Corporate Governance and board of directors: The effect of a board composition on firm sustainability performance”, Journal of Cleaner Production, 2019
6 François Neville, Kris Byron, Corinne Post, Andrew Ward “Board Independence and Corporate Misconduct: A Cross-National Meta-Analysis”, Journal of Management, Vol. 45, Issue 6, 2019
7 Ann Shepherd, Gené Teare “2020 Study Of Gender Diversity On Private Company Boards” Crunchbase News, March 2021