Sam-il PwC "Upcoming ESG Mandatory Disclosures, Board Understanding Must Be Enhanced"

Survey of Outside Directors at US Listed Companies
... Publication of 'Governance Focus'
ESG Oversight Preparation Doubled in One Year
40% Say They Do Not Understand Carbon Emissions

Samil PwC Governance Center announced on the 18th that “the recently published ‘Governance Focus (Issue 23)’ introduced the results of a survey identifying trends in the boards of major publicly listed companies in the United States.”

Outside Director's Opinion on ESG Disclosure Supervision [Provided by Samil PwC]

According to the survey results, as major countries such as the European Union (EU), the United Kingdom, and the United States accelerate the mandatory disclosure of ESG (Environmental, Social, and Governance) information, the proportion of directors at U.S. listed companies prepared to oversee mandatory disclosures has more than doubled in the past year.

First, the board’s awareness of ESG disclosure oversight has shifted positively. The percentage of respondents who said they were prepared to oversee mandatory disclosures increased from 25% in 2022 to 51% last year, more than doubling.

However, the proportion of those who still answered that they do not understand major ESG risks remained high. The percentage of directors who responded that ESG issues are linked to corporate strategy was 54%, showing a declining trend compared to 64% in 2021 and 57% in 2022. Forty percent of respondents said the board does not understand carbon emissions well, and 37% said the board does not understand climate risks and strategies well.

Accordingly, there is an analysis that the boards of Korean companies, which must prepare for mandatory disclosure, also need to improve their related understanding. The report stated, “This suggests that boards need to have a deep and multifaceted understanding of ESG,” and diagnosed that “time should be allocated in all meetings and annual strategy meetings to understand ESG-related risks and opportunities.”

Opinions of directors on board member replacement were also surveyed. The proportion who responded that members should be replaced was 45%, but the annual director turnover rate for companies in the S&P 500 last year was only 7%. This means that the actual number of directors replaced is very small compared to the number of directors wishing for replacement. A Samil PwC Governance Center official analyzed, “For board evaluations to lead to desirable changes rather than being merely formal, current board evaluation methods and procedures must be carefully reviewed and practical measures, such as utilizing best practices, must follow.”

This survey is the result of an outside director survey conducted annually by PwC in the United States. Last year, it was conducted targeting more than 600 directors of listed companies.