Committees

Our perspective: Sustainability in the boardroom

The board’s remit has expanded significantly in recent years to include topics as varied as digital transformation, cybersecurity and sustainability. Sitting atop all of these is the question of purpose, which is receiving more and more attention at board level. A clear articulation of the purpose of the organisation, its reason for existence and relevance in the world, helps unite employees across geographies, increases engagement and fosters teamwork and collaboration. Purpose shapes corporate identity, provides an important foundation for the development of strategy, and is a vital component of sustainability.

The topic of sustainability, driven largely by investor focus on environmental, social and governance (ESG) issues, has risen rapidly up the board agenda in recent years. Stakeholders are becoming increasingly active, holding companies to account. For many boards, regardless of sector, securing the social licence to operate is an urgent concern, which means minimising any negative social and environmental impact for which the business may be responsible. Boards therefore need to be well-informed about ESG matters in order to ensure effective risk management.

Boards also need to appreciate the importance of embedding sustainability into strategy, rather than treating it as a separate domain. If sustainability is to be fully factored into strategy, there must be organisational and cultural alignment, and with it a shift in mindset. Boards need to understand the inextricable link between culture and leadership when thinking about a sustainability transformation — as we have written in The Leaders’s Guide to Corporate Culture, the right culture can unleash tremendous amounts of energy toward a shared purpose and foster an organisation’s capacity to thrive.

We have encountered very different attitudes to the creation of board committees dedicated to addressing sustainability issues. For some chairs, it is an opportunity for a small group of directors to dive deep into the issues, bring in external perspectives and expertise, and share learnings and recommendations with the full board. For other chairs, a dedicated committee is to be avoided; they believe that sustainability and ESG should be dealt with by the whole board. It is still too early to say whether such committees are effective, but it is clear that most boards and committees are currently focused on the compliance and risk aspects of ESG, rather than the opportunities for innovation and growth that come with building a forward-looking, sustainable business model.

A board can only support and oversee a sustainability strategy if it has the right talent in the boardroom capable of providing effective advice and challenge to management. However, sustainability is a relatively new and rapidly evolving topic which is not familiar to many board directors whose executive careers ended a long time ago. For that reason, it’s incumbent on every board director to get up to speed on the most common issues (such as climate change, decarbonisation, or human rights in the supply chain) and to understand the materiality of their organisation from a sustainability perspective, so they can see where both the risks and opportunities lie.

The least common solution for boards trying to get ahead of the sustainability challenge is to hire a director with so-called ESG expertise. We have seen very few cases around Europe where boards have hired a director specifically for their ESG credentials. The main reason for this is probably that it is quite rare to find specialists who have the requisite business experience to be able to add value across the entire board agenda.

Extracted from: Improving board effectiveness in Switzerland. A board advisor’s perspective by Sigrid Artho, who leads Spencer Stuart’s Swiss CEO and Board Practice. The full article first appeared in Board Dynamics, published by the Network for Innovative Corporate Governance, University of St. Gallen, Switzerland.