For both companies and investors, the increased focus on sustainability, social responsibility, and good corporate governance is accompanied by a sharp rise in the number of new regulatory and legal issues. In this scenario, there is an increasingly lively debate about how the roles of those responsible for ESG should be filled and to what extent sustainability claims end in actionism.

The extent of ESG responsibility of supervisory boards in particular has yet to be defined. In surveys, board members subjectively give themselves good marks for their sustainability expertise. There is no need to prove their performance. It is enough to tick that off in the competence profile. Despite the recognized profile, it is clear that there are still many tasks to be solved.

„The topic of sustainability poses immense challenges for supervisory boards,“ emphasizes Michael Kramarsch, founder and Managing Partner of the HKP Group management consultancy. With regard to ESG, the aspects of governance and the environment are largely regulated. However, the social aspects have not yet been „defined“ at all. „With the EU regulation on ESG reporting and the Supply Chain Act, this sustainability criterion has gained enormous importance in terms of internal and external impact,“ warns Kramarsch.

The corporate governance expert believes that one of the challenges is quantifying the ESG criteria. „It is still unclear how they will be measured.“ It also needs to be clarified how supervisory board processes and structures need to adapt to the new requirements. „Will it remain a technical compulsory exercise in order to meet the reporting obligations in the HR area, or will the supervisory board be forced to act?“ asks Kramarsch.

The management consultancy is certain that „social“ as part of ESG will give a „huge boost“ to supervisory board activities. „The board has not yet worked on these topics in a structured way,“ says Regine Siepmann, Senior Partner and Head of Corporate Governance Practice at HKP. Up to now, the supervisory board has been limited to the management board in terms of its HR competence under stock corporation law. Although HR issues below the management board are still the responsibility of the management board, the supervisory board is now also responsible for ESG reporting. „The supervisory board must now also report more broadly on general HR topics than in the past,“ warns Siepmann.

The topic of social issues has already been addressed in supervisory bodies in the past via codetermination. Kramarsch now even sees investors and employee participation closing ranks on social issues. „Investors sometimes find codetermination good because a higher level of organization in the company automatically has a positive influence on social issues, such as fair pay, gender equality, and occupational health and safety,“ says Kramarsch, adding: „Where there is strong codetermination, these issues are well addressed.“

Overall, the two consultants warn against imposing tasks on companies that are not their responsibility. „Good and well-intentioned are very close together,“ says Siepmann. We need to ask ourselves how much of „core social duties“ politics should transfer to companies. Siepmann wants to lower the targets here: „Respect for human rights and the end of child labor are fundamental goals, but difficult to implement ad hoc worldwide; companies tend to withdraw from certain regions when they are confronted with such accusations.“

The consultants believe that the western world should not demand its own social standards globally without reflection. „In Europe, we are sitting on a high horse called moral values, but there is no global consensus on various social issues, and we have to accept that,“ says Kramarsch. It doesn't help to „pillory companies because they source raw materials from China or Africa or work on social development with local production capacities“.

Society must deal with contradictory developments and views in other regions. „You have to be able to tolerate ambiguity,“ says Kramarsch. With ESG regulation and the „intense public shaming“ that is taking place, this is „somewhat out of balance“.

In Kramarsch's opinion, over-regulation is also reflected in the fact that more and more expert knowledge is required on supervisory boards. As a result, the claim that it is an entrepreneurial decision-making body that is committed to business interests is lost.

In this professional self-image, the corporate governance consultant believes it is essential „that the supervisory board understands the business and would like to have an additional qualification. If this is lost because the supervisory board has to spend an excessive amount of time on bureaucracy and regulation, this weakens the board,“ Kramarsch summarizes.

Kramarsch even considers too many experts on the Supervisory Board to be counterproductive. „A supervisory board made up solely of experts would be completely clueless.“ The experts would not be nominated because of their entrepreneurial expertise, but because they are considered experts. „How else do the many professors get on the boards? If more and more experts who focus on beekeeping, biodiversity, and the environment are sitting on the Supervisory Board, that doesn't help corporate control and strategy,“ says Kramarsch.

He also considers AI experts to be „totally hyped“ in this context, saying that they also „don't add any value to the supervisory board, unless it's a software company. It's about understanding the applications, not the basic technology.“