Board Oversight of Corporate Sustainability – From Awareness to Engagement

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By Andreas Rasche

Corporate sustainability and responsibility have come a long way. One aspect that has been sidelined quite a bit is how corporate sustainability is linked to the work of Boards of Directors. My plea here is a simple one: We need to anchor corporate sustainability at the Board level, and we need to do it in a way that Boards move from an awareness that sustainability related work exist (which is usually given) to a deeper engagement with sustainability-related questions.

Through my work and research I often talk to corporate leaders about sustainability. Often, I ask them: “Does your Board discuss sustainability-related matters?” Few leaders reply with a straight “no”; they emphasize that their Board is aware of sustainability issues.  However, equally few leaders claim that their Board really shows high levels of engagement vis-à-vis corporate sustainability. Most emphasize that the Board approves/discusses the annual sustainability report, and also that the Head of Sustainability gives an annual update to the Board. Yet, approving a report once a year and getting an annual update on relevant activities is different from engagement. Awareness is not the same as engagement, and confusing the two can give Directors the misleading impression that their Board really addresses corporate sustainability.

Boards that are just aware of the company’s sustainability-related work miss an important point: decades of research have shown that sustainability is about identifying risks and opportunities for the company. Hence, we cannot (and should not) disconnect relevant discussions from the “regular work” of any Board.  By “regular work” I mean the classic role of the Board, which is to approve and monitor corporate strategy against risks and opportunities. Nearly every aspect of corporate strategy has a sustainability angle to it. The challenge is to identify this angle and to make the most out of it.

How, then, can we ensure that Boards really engage in sustainability-related discussions? Research in this area is still rather scarce, and it would be misleading to claim that we have a lot of insights into this topic. I want to suggest three broad areas that seem important when thinking about how to move Boards from awareness to engagement.

  1. Structure: One important area is to think about how to structure Board oversight of corporate sustainability. There are different options but not one best way. Some Boards may find it useful when the entire Board discusses sustainability-related issues. This keeps relevant content high on the agenda and also makes sure that there is broad involvement in the debate. Other Boards may find it more useful to create a separate committee for sustainability-related discussions or they may enrich the work of an existing committee. This option may be risky in the sense that it unnecessarily isolates relevant debates. On the other hand, a committee can signal importance and ensures that the topic is regularly addressed. Both options do not exist in isolation; they can, of course, be combined.
  1. Culture: Each Board has a culture, and even without generalizing too much it is fair to say that most Directors still understand their main job as controlling and monitoring what is happening in and around the company. I share the view expressed by David Grayson and Andrew Kakabadse that in the longer run the structure that a Board adopts may be less important. What matters most is the mindset that a Board develops vis-à-vis corporate sustainability. Does the Board see sustainability just as an add-on, or does it see relevant issues as an integral discussion of risk mitigation and opportunity maximization? Does the Board identify its own role primarily as being about monitoring, or does it also understand itself as a mentor willing to guide sustainability-related discussions? And in what ways does the Board signal to the organization that sustainability is central to any strategic decision? The self-understanding of the Board matters, and this self-understanding cannot be changed overnight. It develops over time, like any culture does. A Board’s culture is influenced by a number of aspects; such as who participates (often people with explicit sustainability knowledge are lacking) and also by whether the Board is open to learn about the relevance of sustainability.
  1. Strategy: While Boards can have a great structure to address sustainability and also the right mindset that underpins such a structure, true engagement around corporate sustainability may mostly be visible in the pattern of actions that a Board adopts. Henry Mintzberg once called such a pattern “a strategy”. Whether or not corporate sustainability is part of a Board’s DNA becomes visible in actions such as the hiring of C-level executives and the compensation packages offered to these executives. A Board that neglects sustainability-related criteria when deciding on compensation packages disregards an important opportunity to fully engage in the discussion and to adjust its own strategy. While in the past many argued that the lack of robust indicators makes it impossible to tie compensation towards sustainability goals, this argumentation does not hold anymore in times where we have long lists of indicators, measures, and materiality maps.

I am not claiming that this is a conclusive list, but it is certainly a platform to start thinking about how to better engage Boards in discussions around corporate sustainability. First initiatives are emerging around this topic. The UN Global Compact launched a Board Programme a while back, and Stockholm School of Economics is discussing the creation of a similar engagement program for Swedish companies. After all, being aware may just not be enough…

Andreas Rasche (@RascheAndreas) is Professor of Business in Society at Copenhagen Business School and Visiting Professor at Stockholm School of Economics. More information at: www.arasche.com

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