Corporate boards have been seeing a declining focus on ESG issues, with slightly less than half including ESG as part of their regular agenda, as most directors report ambiguity into the meaning of ESG, many viewing it as a charged term, and less than one in ten agreeing that ESG means the same thing as sustainability, according to the new U.S.-focused Annual Corporate Directors Survey released by global professional services firm PwC.

For the report, PwC surveyed more than 520 directors at U.S. public companies, across a wide range of industries, including 69% serving on boards of companies with greater than $1 billion in revenue, and 58% who have served on their boards for more than 5 years.

The survey found a decline in boardroom focus on ESG, with only around half (47%) of respondents reporting that ESG issues are regularly part of the board’s agenda, down from 52% last year and from 55% in 2022, although notably still well above 34% reported by directors in 2019. Additionally, while over half (55%) report that ESG issues are part of the board’s enterprise risk management discussions, this has also declined from 59% last year.

According to PwC, the decreasing focus comes amidst challenges associated with ESG, including “the ambiguity that surrounds it,” and the “increasingly complex and fraught” environment surrounding ESG issues. The survey found, for example, that 66% of directors agreed that “ESG means different things to different people,” and more than a third agreed that “ESG has become a charged term and is no longer valuable.”

Notably, only 7% of directors agreed that “ESG means the same thing as sustainability.”

The survey also indicated a lack of understanding of ESG at the board level, with only 42% of respondents reporting that they believe that ESG is consistently understood by the directors on their boards. This was particularly apparent among boards at smaller companies, with only 36% saying that directors consistently understood ESG, compared with 52% on the boards of large companies. Larger companies were also more than twice as likely to see a link between ESG and company performance, with 32% of directors at these companies saying that ESG has a direct impact on the bottom line, compared with only 15% of directors at smaller companies.

The lack of understanding on ESG issues comes, however, as companies face challenges and decisions regarding many of these topics. The report found, for example, that only 57% of respondents said that their boards are sufficiently prepared to oversee upcoming mandatory ESG disclosures, and only 56% reported knowing how their companies’ climate commitments will impact capital allocation decisions.

In the report, PwC said:

“To effectively oversee all that ESG involves, directors need to move beyond the terminology and understand management’s process for identifying the organization’s most important risks and how they may evolve over time. Whether the company elects to call it ESG or sustainability, identifying the issues that credibly drive sustainable value creation involves expanding the lens when developing long-term strategic plans, identifying and mitigating material risks, and recognizing emerging growth opportunities.”

The report also examined the ESG-related issues that are currently receiving the most boardroom attention, with more than half of respondents reporting that data security and talent management have each been discussed by the board at every meeting, and 95% reporting discussing these at least once over the past year, followed by carbon emissions, discussed at least once by 67% of boards over the past year, climate change by 60%, and enhanced voluntary disclosure by 52%.

PwC added:

“Directors play a crucial role in guiding management to allocate resources and attention to sustainability issues. Forward-looking companies recognize the connection between committing resources to sustainability initiatives and achieving long-term success. Boards need to discern which topics have a direct impact on near-term performance or capital allocation decisions and which require monitoring without necessitating direct input.”

Click here to access the survey.