Sustainability in the Boardroom
Members should adopt sustainability as a key part of their corporate strategies. Just to be clear: with that I don’t mean ‘nice to have’ charitable initiatives, but sound business models that are focused on generating long-term value. The question board members must answer is how do we remain successful in a VUCA-world (Volatile, Uncertain, Complex and Ambiguous)? How will our company be impacted by climate change, increasing inequality, resource scarcity and geo-political changes that challenge the ‘ease of doing business’? This should not be considered as a ‘doom and gloom scenario’ that only requires more integral risk management, but also as a source for innovation and new business opportunities.
Several years ago, I started researching to what extent boards of large companies are involved in sustainability. Overall, it turns out the record is somewhat bleak. Most boards are preoccupied by immediate shareholder demands. The pressure of capital markets is high and short-termism rules. Considering societal changes or taking a longer-term view is often considered to be a distraction from the core responsibilities.
Those who say ‘to embrace sustainability’ are often focused on ‘low hanging fruit’ or peripheral activities that may be perceived as ‘green wash’ (promoting sustainability more in words than action). In conversations, board members have told me that they got away with this for a long time. These insights are supported by the report ‘The decade to deliver, a call to business action’ (2019) which notes that nearly 100% of CEO’s of the world’s largest companies said that sustainability is critical to their future success (up from 93% in 2010). However, only 48% of companies are implementing sustainability in their operations. That means, at best, less than half of the companies really act on what is a business-critical subject. Even as a shareholder this would concern me.
Many companies are stuck; unable to scale sustainability at the pace required to address global challenges and achieve business success. The response to this is often a call for global standards, systems and metrics. I do not believe standards and metrics will be enough to help companies get out of this deadlock. A different starting point is needed. It is defining the purpose of the company and putting society at the heart of what the business does. Not as a side note, but as a core objective. It is crucial for boards to understand that the success of their company in the market depends on the positive impact it has on society. And while less than 50% of companies are implementing sustainability standards, it is likely that a much higher percentage of the population agrees that business should do more to address sustainability challenges. This may have repercussions. Companies must recalibrate to avoid a clash with society.
Some will ask whether companies can afford this ‘purpose’ focus? My question would be whether they can afford to hold on to a profit driver at the expense of society? Business cannot be successful in a society that fails. In this time of radical transparency, society can hold business accountable for any issue. And on a less defensive note, as the former Unilever CEO Paul Polman famously said: ‘you cannot be a bystander in the system that gives you life in the first place.’
It will be hard work for a company to make this shift. I strongly believe this needs to be managed as an innovation process. One should be thinking outside the current box and accept that solutions will be found by trial and error. Experiments are key and progress will come step by step.
For board members this means that they must accept a different paradigm. Short-termism and an exclusively financial focus are not good enough anymore. Anticipating societal needs is part of the ‘new normal’ of business. Those boards that recognize this will create a competitive advantage and position their companies among the winners. Not just in the eyes of their shareholders, but also in those of their (grand)children.
This opinion has been published in The Sustainability Board Report 2020