Tips to activate sustainability in the boardroom

Sustainability has become a key aspect of corporate governance in response to the evolving demands of employees, investors, and legislators. However, many board members continue to view sustainability as a box-ticking burden instead of an opportunity for creating value. Board members, corporate leaders and sustainability professionals need to get proactive if they want to capture the potential for competitive advantage.

Overcome the barriers to successful integration

While most corporate boards are aware of the importance of the sustainability agenda, there remains clear barriers to integrating sustainability into decision making.

The Structural Barrier

Finding the right governance structure to discuss sustainability issues is key in the boardroom. Four kinds of ideal approaches can be taken here.

• Full integration in the board – All directors are involved in discussing sustainability issues, where it’s deeply integrated into routine discussions on risks, opportunities, resources, capital allocation, and more.
• A sustainability committee – Form a dedicated committee whose core focus is on sustainability issues.
• Appoint a champion – One board member with specialist expertise makes sure sustainability is a constant feature on the agenda.
• Extend an existing committee – An existing board-level committee, such as a risk management committee, can be extended to encompass sustainability.

Every company is different, and there is currently no superior guidance on which approach is best. While a sustainability committee ensures ESG issues are routinely addressed and reported, they risk being siloed from the strategic discussions in the boardroom. At the same time, full integration requires that all board members and the chair are fluent in sustainability, otherwise it’s likely that not a lot will happen.

Context is key when choosing direction. What related competencies exist within the company? What is the maturity of sustainability decisions? And what level of knowledge do directors have?

The Mindset Barrier

Compliance with evolving ESG regulation is critical, but also a minimum threshold in terms of a company’s sustainability ambitions. The strong focus on compliance has meant that sustainability in the boardroom is largely still the subject of risk-based discussion, where a traditional mindset continues to zero in on the monitoring and control aspect. How can you reconcile this orientation with a long-term value creation approach that looks beyond compliance?

Sustainability needs to be discussed strategically from a risk-opportunity-growth perspective so that it becomes more integrated into the board’s day-to-day decision making. A proactive board can put pressure on the organization to develop a business case around why the organization should be more sustainable. Articulating and quantifying the risks, benefits and financial impact of various sustainability factors makes it easier to rally stakeholder support and implement change from the top.

The Competence Barrier

While 91% of directors think sustainability should ideally be aligned with strategy discussion, 70% say they have not been very effective in this regard¹. This suggests that there is still a shortfall in terms of the competence required for successful integration in the boardroom.

What competencies are needed for a board member to address sustainability? Beyond ESG knowledge, are social competencies or leadership skills what’s needed? The lack of a current standard in this regard complicates matters further, where competence can only be considered on an individual case-by-case basis.

It cannot fall to the CSO alone to educate on sustainability. The chair and board members should seek out ESG knowledge and training as a team in order to ensure they have the necessary competence to have the right discussions at a suitable level. ‘Sustainability literacy’ in the boardroom is now crucial to capitalize on evolving opportunities.

Rolling out broader education and training throughout the organization is also key to closing knowledge gaps. This can create an environment and infrastructure for sustainability to be taken seriously – supporting both a trickle-down and trick-up effect.

Get the tools and knowledge you need

Position Green can help you simplify your organization’s ESG management and find a clear path to turn sustainability into a value driver.

Contact us, and one of our experts will be in touch to schedule a demo of how our software solution works in practice. No strings attached, of course.

Want to dive deeper?

Hear more from the experts in the webinar below. Andreas Rasche, Professor of Business in Society at the CBS Centre for Sustainability, expands on the topic together with Cornelia Andersson and Maria Hjorth. 

Cornelia is Global Head of Sustainable Finance and Investing, Data & Analytics at the London Stock Exchange Group and holds a seat in several boards. Maria has over 20 years of experience in the financial services sector and is a former CEO and member on six boards, focusing on financial, risk, and ESG reporting.

_{¹Source: Soonieus et al. (2022), Heidrick & Struggles et al (2023)}