What CEOs Think of ESG and Other Big Issues in 2022

Rising inflation, labor shortages, supply chain disruptions, and changing consumer behaviors are the top challenges keeping the world’s CEOs up at night, according to C-Suite Outlook 2022 from The Conference Board. Featured in yesterday’s Wall Street Journal, this year’s annual survey reflects the perspectives of more than 900 CEOs and nearly 700 other C-suite executives from North America, Latin America, Asia, and Europe. Participants weighed in on the top business threats in 2022 and their plans for growth.

I encourage you and your colleagues to join us for a complimentary, live expert briefing on January 25th, from 11am – 12pm Eastern, as leaders of The Conference Board discuss the key insights for what’s ahead stemming from the survey and report. Register here.
In the meantime, here are just five of the insights from the survey.

• CEOs worldwide are far more concerned about stakeholder pressure than shareholder activism. Evolving stakeholder expectations of the role of business in society ranks far above shareholder activism as a factor that CEOs expect to have an impact on their company this year. This is most pronounced in the US, where CEOs rank the impact of stakeholder expectations as 11th, far ahead of shareholder activism at #26. Toward Stakeholder Capitalism: What the Shift Means for CEOs and the C-suite provides practical guidance on how CEOs and their C-suite colleagues can respond to this shift.

• Inflation worries skyrocket. Last year, inflation ranked 22nd on CEO's worry list; it's now risen to 2nd. Moreover, CEOs think rising prices are here to stay: 55% expect inflation to last into 2023 or longer.

• Most CEOs feel unprepared for supply chain disarray. Our survey shows that supply chain disruptions, ranked 4th for CEOs globally, are most acutely felt in the US, Europe, and the manufacturing sector. Just 28% of CEOs globally say their organizations are well prepared to deal with a future supply chain crisis.

• Economic opportunity and equality are the top ESG-Social priority of US CEOs and CEOs globally. US CEOs and CEOs globally both rank economic opportunity and equality as their first ESG-Social priority. Racial equality ranks 2nd for US CEOs and 6th for CEOs globally.

• CEOs should seek to build greater consensus in the C-suite on approaching sustainability. Globally, CEOs rank sustainability 7th as an internal issue to focus on in the coming year. The sense of urgency on addressing sustainability ranges across the C-suite. Human capital leaders rank it 3rd, and CFOs rank it 10th. Orienting a company toward focusing on its long-term impact on society and the natural environment requires a clear consensus among the C-suite on what issues matter to the company and the strategy to address them. As discussed in our recent report, Organizing for Success in Corporate Sustainability, CEOs need to ensure that their CFOs and finance teams – who often control the planning and capital allocation processes at a company – are fully engaged in these efforts, in part by including finance on the firm’s internal sustainability steering committees.

ESG Disclosure Trends and Ways to Reduce ESG-Related Securities Litigation

On December 13th, we held a Center Briefing on ESG disclosure litigation exclusively for Governance & Sustainability Center members provided by Lyuba Golster, P.J. Himelfarb and Stacy Nettleton, partners at Weil, Gotshal & Manges, and Danielle Do, SVP, Chief Corporate & Securities Counsel and ESG Leader at Synchrony Financial.

If you would like to read the full meeting summary, you can find it here and the excellent presentation deck provided by Weil here.

Some of the key takeaways below:

• Be mindful of the different types of ESG disclosure litigation. These include greenwashing cases, which are generally based on consumer protection, false advertising, and other statutes, and litigation arising from statements relating to Caremark claims. The most universal risk relates to securities litigation, which was the focus of the Center Briefing.

• The risk of securities litigation relating to ESG disclosures is increasing. In securities litigation, “materiality” is often the key issue. Companies are making statements on ESG topics that are increasingly specific, quantitative, forward-looking, frequently repeated, related to the business – exactly the factors that increase the chance that a court will find the statement or omission material.

• While companies cannot turn back the tide on ESG disclosure, they can mitigate securities litigation risks. With the top 10 institutional investors holding 30% of the S&P 500 and ESG funds predicted to grow from $8 trillion today to $30 trillion by the end of this decade, expect investors to continue to push for more detailed and goal-oriented ESG disclosures. Companies can, however, reduce the risks of securities litigation. First, they can ensure that they have properly vetted any statements in CSR or ESG reports or on the website that may be viewed as material. Rather than reinventing the wheel, they can piggyback on existing disclosure processes. Second, firms should be very careful about using the word “material” outside of their securities filings. Third, companies can also include disclaimers similar to those used in securities filings for forward-looking statements.

• Companies can also reduce risks connected with Caremark claims alleging that the board has failed in its oversight responsibilities. As a threshold matter, companies should ensure that the board receives reports on the significant ESG and other risks facing the company – boards cannot rely just on management oversight. Given that ESG risks are too numerous for a single committee to handle, companies should not leave oversight of ESG just to the audit committee. Further, when responding to allegations that the board failed in its oversight role, companies are naturally inclined to say "we are committed" or "have controls in place" to address misconduct instead of "we are looking into" the allegations. Statements providing assurance about commitment and controls can be perceived as misleading if senior management or the board were aware of the misconduct beforehand.