Today’s business environment is increasingly characterised by volatility and disruption. Climate change, employee rights and welfare, geopolitical risks, cybersecurity and corruption are only among the key sustainability issues that business leaders must address to scale back risks and achieve positive financial returns. Involving company boards on this journey can be critical to success.
In the past, company boards were hardly involved in these issues. For example, in 2018, when NYU’s Stern Center for Sustainable Business (CSB) first assessed sustainability on Fortune 100 boards, only 22 of them had sustainability committees. We also found that board members had limited sustainability skills that always didn’t correspond to the fabric ESG issues facing the corporate. In 2018, for instance, only eight of the overall 1,188 board members had cybersecurity qualifications, only three had climate qualifications and only twelve had industrial relations qualifications – all existential problems for many industries.
CSB just published a 2023 update This suggests some improvement: 89 of the Fortune 100 firms now have sustainability committees, a rise from the previously mentioned 22. 43% of all board members now have some type of sustainability credentials, up from 29% in 2018. We have slight improvements saw two of the three issues listed previously – cybersecurity (50 out of 1,161 board members) and climate (22) – but a decline in worker relations (7). We also find that discrepancies live on in some industries which might be particularly exposed to certain ESG issues, resembling energy, where there is barely one board member with climate expertise, and utilities, where there isn’t any board member with environmental expertise.
However, in lots of industries we see significantly better alignment with key sustainability issues and the expertise of board members. For example, in 2018, within the healthcare, pharmaceutical, biotechnology and life sciences category, there have been 41 members with social qualifications, but only five had health-related qualifications. In 2023, that number had increased to 16 (14 in health challenges/advocacy and two in healthcare). And despite the numerous environmental footprint of some industries (e.g. energy, water and waste), there have been no board members with environmental knowledge on this sector in 2018 – now there are 13! There were much more dramatic improvements on governance issues resembling opioids, biotechnology and drug access: 30 members had governance credentials, up from two in 2018.
It is the job of the CEO and his team to work closely with the board to make sure that boards excel in today’s environment where regulators, investors, customers and employees seek information in regards to the company’s positive and negative sustainability impacts can provide services. They should help their board members understand the important thing sustainability issues facing the corporate, work with them to integrate sustainability strategies resembling decarbonization into the business strategy, and develop board sustainability competency through training or recruiting board members with the mandatory qualifications support .
Best practices for engaging boards on key sustainability issues include the next:
- Inventory the board’s ESG credentials and publish them on the corporate website and 10K.
- Identify areas of weakness and either provide support with training or help find board members who can bring relevant expertise, resembling: E.g. sustainable investors, chief sustainability officers, CEOs of huge NGOs with aligned missions, renewable energy executives, concurrent board members in DEI or sustainability organizations, etc. soon.
- Help the board establish a robust governance approach by incorporating sustainability issues into the audit, nomination and compensation committee charters, establish a sustainability committee focused on embedding sustainability into business strategy with appropriate KPIs and financial return metrics, and ensure transparent and regular internal processes and external communication on sustainability performance.
- The entire management team must be well versed in key sustainability issues and must be structured to drive the implementation of the sustainability strategy. This requires leadership from each department (e.g., finance, human resources, product research and development, supply chain), a cross-functional organizing committee, and establishing sustainability KPIs across the organization with compensation tied to those KPIs. The sustainability leader must be a part of the C-suite and work closely with the board’s sustainability committee in addition to manage the agenda for the leadership team’s sustainability committee. Further information on embedding the sustainability core into the business strategy and the associated governance could be found here guide.
Boards and senior management should be well versed of their company’s material sustainability issues, work together to make sure that sustainability risks and opportunities are embedded within the business strategy, and make sure that the corporate is fully compliant with the growing variety of sustainability regulations. This is all about improving corporate governance and financial performance. Therefore, it’s the duty of management and board leadership to coach the total board and recruit members who might help the organization successfully navigate the cross-currents in sustainability.
Tensie Whelan is Distinguished Professor of Practice and Founding Director on the NYU Stern Center for Sustainable Business.
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