08 Oct 2019
Is your board still ducking the sustainability challenge?
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Here’s why taking board responsibility for environmental and climate matters seriously is simply not an optional extra anymore.
The Deloitte report ‘Sustainability and the board: What do directors need to know in 2018?’ was clear.
“Although it might not be the first boardroom topic you think of, sustainability is now central to corporate competitiveness and a company’s continued ability to operate.
Traditionally encompassing topics as varied as environmental disasters, labor relations, safety incidents, or scandals, sustainability affects all sectors and challenges even the most progressive companies and the most thoughtful directors.”
Deloitte saw sustainability securing more time at, and in between, board meetings. This was in part because there is “no single, standardized approach to incorporating ESG [Environmental, Social and Governance] into boardroom discussions on business strategy and risk.”
“The stakes are high, and directors need to act now to recognize sustainability as a fundamental element of their stewardship and fiduciary role”.
If we cannot rely on boards to play their part in resolving some of the burning (literal and metaphorical) environmental issues, then things are indeed bleak.
The board's responsibility
What about boards that neglect, or are simply ignorant of, the clear benefits of a strong sustainability program? Deloitte’s report answered, “they do so at their own peril. There is a growing body of evidence indicating that sustainability factors influence financial returns and present an opportunity to drive long-term value.”
How should the board behave?
“The role of the board of directors has been described as ‘creating tomorrow’s company out of today’s’. It follows that boards are responsible for considering and scenario-planning the long-term strategic threats and opportunities facing the business, to ensure a company continues to evolve and remains adaptable for changing times.”
Critically, Bingham adds: “Sustainability and a response to climate change are central to a company’s long-term survival and success, making it a vital topic for boards. In the past, many boards and companies adopted cheap and easy fixes – a generous donation to a relevant charity, or a glossy brochure. Today, that is insufficient.”
The pivot to purpose
Vancouver-based Coro Strandberg, an expert on sustainability leadership and transformational business practices and relationships, takes Bingham’s comments further. There must be a much wider and more fundamental board discussion.
Says Strandberg: “In the future, we will move towards redefining ‘what is the purpose of the corporation?’; which is a question of key concern for any board.” Strandberg calls it the ‘apex question’ that must be answered by shareholders, owners, and management alike. “I call it ‘the pivot to purpose’,” she adds. “I wouldn’t start by saying ‘now you’re on the board what about sustainability?’”
“I would say, you’re on this board and what’s the purpose of the company and how does the board have oversight of the company’s purpose?”
For Strandberg, that means a call to action for boards to “get a humanitarian or societal purpose”, one that even goes beyond profits and shareholder returns and having good customer relations. Although it shouldn’t, of course, abandon these crucial areas. This overarching fundamental approach to what a company is, and what it stands for, has been brought into sharp relief by the crises we all now face. The role board directors must play in this unfolding drama cannot be overstated.
Tony Gaffney, Managing Partner, Board and CEO Services at Odgers Berndtson in Canada, echoes this sentiment: “Boards have a duty to consider how their company and its sustainability measures up against emerging ESG standards and to ensure that their business plan ensures adherence to those standards. Sustainability considerations vary across industry sectors. However, it is essential that companies consider sustainability from all perspectives including those of their customers, investors, employees, and other stakeholders.”
There are rising societal expectations, believes Strandberg, with all stakeholders looking for businesses to play more of a role in society.
It can mean the board should revisit the very essence of the company. Why does the company exist?
This, in turn, is linked to a general public decline in trust (of governments, organizations, companies and so on). Also, investors are calling for more, consumers are braying for action.
For Strandberg and Bingham, avoiding tokenism is key. Strandberg believes that being a director on a board where you are, perhaps, the sole sustainability expert is simply not good enough.
“It’s not about having one person on a board! You get labeled as ‘that sustainability person’! I have a solution for tokenism: board education on the relevant sustainability topics material to your company. Plus, you need to have a very skilled chair and other directors who are exposed to and readily accept diversity of thought.”