Sustainable business practices result in improved financial performance, and leaders — including board members — must be able to explain to their stakeholders what role the organization plays in addressing societal challenges.
The ongoing pandemic and social justice movements have underscored ESG priorities. According to Russell Reynolds Associates' 2021 Global and Regional Trends in Corporate Governance, climate change risk and convergence of sustainability reporting standards were in the top three concerns.
Sustainability is being solidified as a critical leadership competency as nomination and governance committee chairs say it is important or extremely important in the selection of board directors (63%) and senior executives (77%). Both of these numbers are on the rise — 52% of respondents said this was more important now than in past years for board directors, and 58% said the same about senior executives.
The path forward: 10-step sustainability roadmap for boards
Despite the desire to increase sustainability efforts, boards often struggle to determine what steps to take and how much effort to invest. To understand how boards can take the first step towards sustainability, we interviewed over 130 global corporate directors and C-suite executives, surveyed over 1500 additional corporate leaders, conducted an extensive analysis of executive- and board-level talent and recruiting practices and leveraged deep expertise in sustainable leadership and corporate governance practices.
Insights from this research illuminated a 10-step roadmap for boards built around the issues of board leadership; board culture; purpose, strategy and risk alignment; structure and process; and people and composition.
Board leadership
1. Embed sustainability into all discussions with the CEO and executive team. The executive team must come to expect that the board will ask about it every time they speak. These conversations have signaling value, as they prompt executives to constantly think of sustainability as part of their remit, even when not explicitly tasked with it.
2. Proactively engage with external stakeholders about sustainability. Investors, regulators, and key stakeholders must know that the board is active in orienting the company. Having a board that speaks authentically to the firm's objectives and sustainability results establishes credibility and maturity of sustainability efforts.
Board culture
3. Establish a purpose-driven culture that looks at issues through a sustainability lens. Every board member should view the company and its operations through the lens of sustainability and have no hesitation bringing up sustainability-related matters in any conversation with executives or fellow directors.
4. Educate directors on sustainability. Boards must continuously provide education around understanding the perspectives and experiences of investors, employees, consumers and relevant, broader communities. It may be helpful to engage in smaller settings to provide an opportunity for those who might be less conversant on the topic to ask basic questions.
Purpose, strategy and risk alignment leadership
5. Apply a sustainability lens to corporate strategy decision-making. Sustainability must be fully integrated into all aspects of corporate strategy. While the strategy is developed by the executive team, the board needs to be engaged and aligned throughout the entire process and ensure that potential benefits and risks of prioritizing sustainability is always front and center.
6. Set goals and establish clear metrics for tracking progress towards them. To be credible, boards should have a clear plan and related metrics for sustainability efforts and not simply share a goal. This enables performance measurement and allows leadership to disclose performance to investors and stakeholders.
Structure and process
7. Structure the board to engage meaningfully on sustainability matters. While many boards consider creating a standalone committee, the specific structure is ultimately less important than ensuring that the strategic and nuanced discussions around sustainability take place. Achieving this will help connect sustainability into all other board agenda items and discussions.
8. Change compensation models to account for sustainability targets. Tie compensation to sustainability and make this link public. When compensation becomes intertwined with something like sustainability, other parts of the organization quickly fall in line: recruitment, training and development, strategic planning, performance management.
People and Composition
9. Make sustainability a factor when hiring directors. Boards don't need a sustainability expert — they need great directors with a sustainable mindset, who operate on the core belief that business is not a commercial activity divorced from wider society and bring the ability to align stakeholders under related core values and beliefs.
10. Make sustainability a factor when hiring CEOs. The reality is that a company's commitments start at the top with the CEO and flow down through the executive ranks and throughout the organization. Without their commitment, it is unlikely to be factored into the strategy, key metrics, or other essential corporate activities.
As businesses gain momentum in playing a central role in improving the world, it is essential that board leaders know what steps to take to drive sustainability within the enterprise.
Laura Sanderson is a consultant at Russell Reynolds Associates, where she leads the firm's Board & CEO Advisory Partners in Europe.