Why Your Firm Should Be Engaging the Board on Sustainability Challenges
Sustainability is a top business issues for CEOs of major global companies.
This is according to The Conference Board’s annual CEO Challenge survey, which found chief executives ranked sustainability among the top five global challenges for the first time since the survey’s launch. The organization defines corporate sustainability as “the pursuit of a business growth strategy that creates long-term shareholder value by seizing opportunities and managing risks related to the company’s environmental and social impacts.”
Other surveys send a similar message about the importance executives place on environmental and social sustainability issues.
The most recent UN Global Compact-Accenture CEO Study report finds that 70 percent of executives representing companies with annual revenues of more than $1 billion see climate change presenting growth opportunities for their company within the next five years.
And a 2014 McKinsey survey finds 43 percent of executives say their companies are looking to align sustainability with their overall business goals, up from 30 percent two years earlier.
Even beyond their survey responses, heads of corporations are playing a larger role advancing sustainability in politics and the public arena. We saw this play out at COP21, where businesses made their own low-carbon commitments and played a leading role in the discussions culminating in the adoption of the Paris climate deal. Additionally, in the US, global players including Apple, Microsoft, Mars, Ikea and others all came out in support of — and filed legal briefs endorsing — the Clean Power Plan.
The message seems clear. Sustainability is largely good for business, which is why executives are integrating it into their corporate strategy. In fact, at least nine companies globally — Unilever, General Electric, Ikea, Tesla, Chipotle, Nike, Toyota, Brazilian beauty company Natura and Whole Foods — generate a billion dollars or more in revenue annually from sustainable products or services.
Unilever, for example, says about half of its growth last year came from its sustainable living brands, which grew 30 percent faster than the rest of the company’s business. And Ikea says in fiscal year 2015 it saw a 29 percent increase in sales of products that contribute to a more sustainable life at home for consumers. It’s entire lighting range is now LED.
A new report from The Conference Board, however, indicates that CEOs may be missing a key opportunity to meet sustainability challenges by engaging their boards of directors.
“We asked 84 senior executives in sustainability functions to identify the business practices they considered to be most indicative of leadership in corporate sustainability,” said Thomas Singer, the principal researcher in corporate sustainability at The Conference Board who has authored The Seven Pillars of Sustainability Leadership. “These executives almost unanimously agreed that having a board of directors that is actively engaged on sustainability issues is an essential driver of sustainability leadership.”
But, Singer adds, in the most recent CEO Challenge survey, less than 10 percent of global CEOs chose “strengthen board oversight of sustainability issues” as one of their top strategies for meeting the sustainability challenge.
“This reveals a disconnect between what sustainability executives see as essential for leadership and what CEOs are focusing on, at least when it comes to sustainability,” he says.
So what are the business benefits to strong board oversight of sustainability issues?
“Boards that are engaged on sustainability are more likely to take a longer-term view, and thus are able to better foresee and prepare companies for potential risks and opportunities,” Singer said. “ They are more likely to focus more on long-term success than on short-term financial results.”
Singer points to research conducted by MIT Sloan Management Review and The Boston Consulting Group that looked at board engagement as a driver of sustainability success.
Overall, 86 percent of respondents said that the board of directors should play a strong role in driving their company’s sustainability efforts. But only 42 percent of respondents see their boards as moderately or more engaged with the company’s sustainability agenda.
This disconnect affects performance: in companies whose boards are perceived as active supporters, 67 percent of respondents rate collaborations as very or quite successful. In companies whose boards are not engaged, the reported rate of success is less than half that.
Singer says CEOs of companies that want to be corporate sustainability leaders should look closely at their boards and ask themselves a series of questions. “Do their boards have explicit oversight of sustainability issues? How much time are their boards allocating to sustainability issues? Do board members have any expertise in the sustainability areas that are most material to the company?”
Considering these companies are more than twice as likely to successfully accomplish their sustainability initiatives, it seems a simple step to take for a big payback.
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