Leading Sustainably

At the National Association for Corporate Directors (NACD) Summit 2020, writer Anand Giridharadas set off a firestorm[1] when he chastised thousands of attendees from around the world for failing to prevent or even respond in a substantive way to devastating issues, such as the climate emergency, disinformation and the opioid crisis. And it didn’t stop there. He went on to declare that many of their children and grandchildren didn’t respect their work, and that last year’s business roundtable statement was toothless. 

The negative reaction to his talk was nearly instantaneous, sparking fury from many participants, with some even demanding refunds. While perhaps too blunt in his pronouncements, was Giridharadas off the mark?

Senior leaders and board members have increasingly been under fire in recent years for not taking bolder, more transformative action on many of the most pressing issues of our time. While in the past, society would have turned to government to solve global problems, in the absence of political consensus and action from many political leaders around the world, business is compelled to step up and assume a bigger role in addressing these challenges.

Coupled with this is an increasingly entrenched belief that business has had a significant role in contributing to our problems and must therefore be a key player in helping to ‘right the ship’ by embracing a sustainable approach to business.

The path to sustainable business remains sinuous for most corporate directors

While much of the responsibility for sustainability transformation has been aimed at the c-suite, it’s clear that this fundamental organisational shift will be impossible without full buy-in from corporate boards. However, where do boards actually stand on sustainability?

Findings from the Leadership In Corporate Sustainability – Europe Report, developed by Board Agenda (BA) and Mazars in association with INSEAD’s Corporate Governance Centre, shed some light on this question.

While the report found that nearly 75 per cent of European board directors believe that ignoring sustainability will affect their firm’s ability to create long-term value, just 30 per cent believe that ‘everyone on the board has a good understanding of sustainability and its place in strategy’, and just over half state that ‘the board sees a solid business case in sustainability’.

While it’s encouraging that boards tie their firm’s long-term resilience to sustainability, these findings highlight two important problems at the board level: first, a continued scepticism about the business case for sustainability (at least in the short-term) and second, a lack of knowledge and experience in addressing sustainability in a business context.

Building a sustainability-savvy board should be at the top of the agenda

Perhaps these numbers have improved since the onset of the Covid-19 pandemic – a global event that has shown the importance of sustainability. However, as highlighted in our book, Leading Sustainably, many organisations, both large and small, continue to face significant headwinds in putting sustainability at the core of their strategy and operations.

As Rebecca Self, head of sustainable finance at climate change consultancy South Pole, describes it: “High board level awareness of sustainability is critical. There are many potential direct and indirect environmental impacts, which lead to both financial risks and opportunities for a company. In the area of sustainable finance, we provide workshops explicitly for financial sector management so they can better understand climate science, the current global policy framework in this area and explore possible impacts for their own business, products and services.”

As the need for sustainability in business becomes clearer, despite lingering scepticism, and pressure on businesses to accelerate their adoption of sustainable models grows, how can boards successfully guide organisations through this transition? Here are five actions boards can take to increase their sustainability capability and accelerate their organisation’s progress:

1. Designate a ‘sustainability guru’ 

Because it can be challenging for all members to quickly master this topic, designating a ‘guru’ or leader can be a helpful way to build capability within the board. In fact, the parallel for this is the sustainability VP, director, etc. within the organisation itself. This role has been fundamental in advancing sustainability as a priority within companies and, in the best-in-class examples, is a core part of the CEO’s leadership team.

Designating a board director to hone skills and educate others can be an efficient and effective way to build skill within the board. When deciding who to ask to step into this role, consider the person with either some experience in the topic or a passion for it. With those leading sustainability initiatives within the organisation, a lack of experience can be made up for in keen interest and dedication. This person will be an invaluable asset and a guidepost for their board colleagues.

2. Integrate sustainability into board training 

Sustainability training is greatly lacking across many organisations. While organisations dedicate significant portions of their training budget to topics such as marketing, project management, finance, digital strategy, and general leadership, in our research, we found few gave the same priority to sustainability-related subjects. Areas of focus for training are often linked to the priorities of the C-suite which, presumably, have been blessed by the board.

For the organisation to transition to a more sustainable model of business, it is not just imperative that organisations invest in training their employees in this increasingly pertinent area, but they also need to train their leadership, both internal and external. Training the board in the most critical areas of sustainability – the business case, new models (e.g. circularity), carbon strategy, sustainable innovation, etc – will better prepare boards for the key strategic decisions they will need to make in the coming years.

3. When searching for new board directors and C-level executives, look for those who have sustainability experience and skills, or at least a high-level understanding of its importance

As many boards have term limits, attrition is natural; this kicks off the search for new board members. The most sought-after board directors are, of course, often those who have top-tier, C-level management experience. Fortunately, diversity has also leapt up the agenda of key search criteria in recent years, as board diversity laws have been instituted in many countries around the world. Sustainability knowledge and experience must be the next priority.

Some organisations have acted decisively on this. For example, this past summer, luxury giant Kering took the bold step of designating actress Emma Watson to their board and asking her to take on the role of chairing Kering’s sustainability committee.4 As a long-time activist and thought leader in the sustainability space, Emma Watson can also credibly serve as a sustainability leader for Kering, both within the board and externally.

4. Get outside input from experts/expert organisations

There is a growing global ecosystem of sustainability experts, practitioners and standard setters who can not only provide practical solutions on how to transform business but are also simply a wealth of invaluable knowledge. Whether it be certification organisations, such as EcoVadis, B Labs’ B Corp, or the myriad of sectoral certifications (e.g. Rainforest Alliance, Fairtrade or LEED (Leadership in Energy and Environmental Design); transformative foundations, such as the Ellen MacArthur Foundation; business networks, such as the World Business Council for Sustainable Development (WBCSD) and others; standards organisations, such as the Sustainability Accounting Standards Board (SASB) or the Task Force on Climate-related Financial Disclosures (TCFD); or, of course, consultancies, there is a wealth of knowledge to tap into. The board should ensure that it connects with organisations that are most aligned with its industry and objectives and, if it is not happening already, encourage the CEO to do the same.

As well as drawing on expert advice and organisations, boards should also leverage expert, data-based solutions to gain an in-depth understanding of their businesses’ sustainability related risks. One leading solution that boards can look to is Datamaran, the only software analytics platform in the world that identifies and monitors external risks, including environmental, social and corporate governance (ESG). CEO Marjella Lecourt-Alma elaborates on the fundamental role data plays in the sustainability story: “As investors probe more and more for ‘ESG-washing’, board members need to make sure that material ESG risks are embedded at the core of their businesses. This can only be achieved by ownership of these risks at the top level, through a systematic risk management and reporting process, backed by credible data.”

5. Ensure the CEO has a clear plan to advance the organisation on sustainability with ambitious goals, clear deliverables and metrics to assess performance

If board directors are unclear about the role of sustainability in their organisation’s strategy, it is most likely because the CEO has not laid out a clear strategy for his or her organisation’s sustainability transformation. Even if board directors are not yet fully at ease with the topic of sustainability, they still have a responsibility to endorse and guide a strategy for the organisation that will ensure the company’s viability and resilience over the short- and long-term. There is increasing evidence that sustainability will play a central role in that picture. Board members must ensure that the CEO not only has a plan in place, but also that the plan is ambitious, with clear deliverables. specific milestones, and measurable outcomes. In one encouraging example, Apple recently announced that it will be fully carbon-neutral across its supply chain and product portfolio by 2030. Now, that’s an ambitious goal! Finally, CEO compensation should also be tied to success (or lack thereof) of sustainability efforts, just as it would for financial and growth targets.

As companies look to step up their actions on sustainability, it is crucial that the board plays a central and active role. Going forward, having a sustainability-savvy board will be indispensable to a company’s success

WITH CONTRIBUTIONS FROM:

Rita Clifton, CBE, deputy chairman The John Lewis Partnership, global branding expert, author and board member Rebecca Self, head of sustainable finance, South Pole and Marjella Lecourt-Alma, CEO, Datamaran