There is a risk that different approaches will lead to inconsistency of delivery – a lack of consistent understanding and measurement could create a false impression of success, leading to complacency and the risk of underestimating the impact of sustainability.
Mazars, Board Agenda and INSEAD Corporate Governance Centre have partnered to ask business leaders about their company’s sustainability outlook in order understand what exactly is motivating board members to keep sustainability on their agenda, and how they are demonstrating their knowledge of sustainability issues while translating them into corporate strategy and action.
Sustainability is very high on the boardroom agenda, second only to financial performance. It is not enough for boards to just be aware of and express a commitment to sustainability, they now need to demonstrate that they are willing to act positively to ensure their words are matched with actions. It is imperative that the issue is built into recruitment, education and reward processes. Boards should be scheduling time for fundamental discussion about corporate purpose and what value means to your organisation; acquiring in-depth information on sustainability performance for your board; looking for sustainability expertise and mindset when appointing new board members; and explicitly integrating sustainability into board committees and board member duties.
Findings from the survey include:
- 73% believe that ignoring sustainability will affect their company’s ability to create long-term value.
- 70% say their company makes a positive contribution to society, 29% are aiming to be a market leader in sustainability and 10% admit sustainability does not figure in how they position themselves.
- 53% say their board sees a solid business case for sustainability, while 57% say they aim to meet their obligations. Only 24% cite growing pressure from customers.
- 35% fully agree that sustainability expertise or a sustainability mindset are explicit selection criteria in the appointment of board members.
The results of the survey demonstrate that boards have sustainability on their minds, however they need to make sure they have the infrastructure in place to manage their sustainable performance effectively. A gap seems to exist between the extent to which boards recognise that sustainability is a critical business issue and their effectiveness in measuring and managing it. To close this gap, many boards need to address how they can enhance boardroom expertise in sustainability issues as a matter of priority. By doing so, they will greatly strengthen the likely long-term value of their businesses and reduce the risks of unexpected shocks.
Board members need to be asking more questions of themselves and their organisations - there is a degree of confidence that companies are addressing sustainability issues, but equally, there is a lack of consistency over what and how data is gathered and analysed, and how that is then translated into action and responsibility. They need to be able to measure progress on their sustainability journey, so that they can make informed decisions.
The increase in awareness of sustainability is in line with a shift we see elsewhere. Driven by a developing societal awareness, companies face growing demands, if not pressures, to conduct their business sustainably. These come from stakeholders such as consumers, investors, national governments and NGOs, and have been articulated in international documents and agreements, of which the UN Sustainable Development Goals have gained particular prominence. As such, it is surprising that boards do not see pressure from investors and employees as key drivers for their sustainability activity. This is not in line with millennials’ focus, which may suggest a worrying generational divide is emerging between boards and their key stakeholders in many instances.
Key questions for boards