Boards Boast New Directors’ ESG Expertise
The Agenda article, "Boards Boast New Directors’ ESG Expertise," quoted Russell Reynolds Associates Consultant Rusty O'Kelley on why it's important for board directors to be well-rounded. The article is excerpted below.
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Earlier this month, Dow, the chemical conglomerate with more than $40 billion in market cap, named Luis Moreno to its board of directors. Moreno, the former president of the Inter-American Development Bank, brings to Dow decades of experience in public policy, social and economic development, renewable energy and climate resilience, according to Dow.
Moreno is just one example of an increasing number of ESG experts named to boards. Companies including Apple, Procter & Gamble and Williams Companies have also touted new board members’ ESG experience. The field has grown in importance as business leaders are strategizing on ESG topics such as climate change and workforce diversity and as investors have pressured companies to make ESG a top priority in board oversight across every industry.
Similarly, last week, BlackRock released guidance on how it will be examining companies’ climate commitments, and it urged boards to ensure that all of their directors have some level of climate competency. “We expect directors to have sufficient fluency in climate risk and the energy transition to enable the whole board — rather than a single director who is a ‘climate expert’ — to provide appropriate oversight of the company’s plan and targets,” the guidance says.
Indeed, Rusty O’Kelley, coleader of Russell Reynolds Associates’ board and CEO advisory partners practice, says he advises companies not to add a director to the board who is solely focused on ESG. After conversations with numerous governance heads of institutional investing firms, he says they agree.
“[If you name an ESG expert to the board], there is the potential of a one-trick pony — someone so focused on ESG as that is what they do. But, can they contribute [to the board] more broadly?” O’Kelley asks. “So, the general view we have seen is that you don’t want just the ESG director. You want a director who has other skills [who] also has insight into ESG because ESG is so broad.”
If the board is facing an ESG crisis, he says, it can be more useful to simply work with a consultant or outside expert.
“It’s more helpful to [find a board member] from a company who has dealt with a similarly complex issue around sustainability and the environment who can also help be a board member in full on all of the other issues the board has to deal with,” O’Kelley says.