The Tribune

Companies could lose key staff, customers and investments if they fail to live up to environmental, social and governance (ESG) expectations, a Bahamian accountant said yesterday.

Kevin Cambridge, the PricewaterhouseCoopers (PwC) partner responsible for ESG issues, said in a statement accompanying the accounting firm’s survey of 193 Caribbean directors that the climate change threat and COVID-19 pandemic made these matters priorities for companies to address.

“ESG impacts all lines of service, and impinges on the most pressing issues on the boardroom agenda - from talent gaps to winning back customers,” said Mr Cambridge. “ESG also holds the key to forging stronger and more sustainable business prospects.

“In The Bahamas, we are forced to take a closer look at top issues that we are currently facing, including climate change and the need to keep our people safe and our economy strong during this pandemic. We’re also seeing where stakeholders, consumers and employees are gravitating towards green and socially-conscious organisations. Organisations that fall short of stakeholder expectations could lose key talent, customers and investments.”

“Directors agree that the world has changed and Boards need to change with it. Diverse boards bring a breadth of experience and freshness of perspective that are critical at a time of shifting stakeholder expectations and accelerating social and economic change,” added Mr Cambridge.

“But in order for new Board members to provide the most value, deliberate inclusion efforts must be made. Each voice in the boardroom needs to be heard, and Boards that are prioritising an inclusive board culture will be better poised to face whatever comes next.”

PwC, in its statement, said company directors are coming under increasing pressure to rethink governance and decision-making processes as it released the Caribbean’s Corporate Governance Survey 2022: Picking up the pace.

“Whilst continuing to manage the ongoing impacts of the global COVID-19 pandemic, the results highlight that organisations need to re-examine and realign priorities, re-think Board structure and reconfigure Board governance to address emerging challenges and be able to deliver sustained outcomes for all stakeholders,” the accounting firm added.

Disclosing the findings, PwC said more than half the directors surveyed believe their Board needs refreshing by replacing at least one fellow director. And 30 percent would replace two or more, citing a reluctance to challenge management, a lack of necessary skills and expertise as among the top concerns.

The accounting firm added that fewer than half the directors surveyed reported that their Boards had carried out an assessment in the past year, of which most were self-assessments. Some 74 percent of directors identified difficulties in being frank in the review process, and more than half (57 percent) interpret it as a “check the box” exercise.

Fewer than 60 percent of respondents believe there is sufficient follow-up after the assessment process, and that the assessment process is effective. In response to the results, less than 10 percent sought to diversify the Board.

PwC said it found more than 90 percent of directors believe Board diversity brings unique perspectives to the boardroom, improves relationships with investors and enhances Board and overall company performance. In spite of this, 40 percent have not taken any action to strengthen diversity over the past two years, and almost none feel their Boards are already diversified.

Industry and risk management expertise are prioritised above diversity when selecting a new board member (33 percetnt), even with acknowledgement that there is an “over-reliance on executive networks to source candidates”.This stands as the top impediment to increasing board diversity (40 percent).

The PwC survey found that 60 percent of directors say ESG is linked to company strategy and acknowledge its financial impact, yet only 10 percent say their Boards understand ESG risks very well.

Directors take a number of ESG-related factors into account when developing their strategy, including resource scarcity (83 percent); climate change (82 percent); and human rights (86 percent). Yet income inequality barely registers, despite the fact this is the macro trend that is a cause for concern among directors (95 percent).