Forbes India 15th Anniversary Special

Ensuring a green future: How the board of directors can drive the sustainability agenda

With its wealth of expertise, a board of directors has an unparalleled ability to catalyse transformative change by seamlessly integrating sustainability into core strategies, fostering cross-sector collaboration, and amplifying impactful solutions

Published: Jun 5, 2024 03:10:04 PM IST
Updated: Jun 5, 2024 04:35:20 PM IST

Ensuring a green future: How the board of directors can drive the sustainability agenda

As the crescendo of calls to action on environmental, social, and governance (ESG) fronts swells to a resonant roar, businesses find themselves at a pivotal juncture. Navigating this landscape demands more than mere lip service; it necessitates an unwavering commitment to holistic sustainability interwoven into the very fabric of organisational DNA. Heralding this paradigm shift, the board of directors is an indispensable beacon, illuminating a company’s path towards a more sustainable and conscientious corporate ethos.

The pursuit of sustainability is an inspiring quest that unites organisations, communities, and individuals in a collective endeavour towards a thriving future. While challenges such as climate change, social inequalities, and ethical concerns pose existential threats to businesses and society alike, they also present tremendous opportunities for innovation and positive transformation. Recognising this reality, visionary organisations are proudly championing sustainability as a core guiding principle that shapes their operations, strategies, and decision-making processes. In fact, globally, sustainability governance has experienced significant growth, rising from 50% in 2019 to 88% in 2023. However, navigating the nuances of this vital transition requires organisations to approach problems with fresh perspectives, question long-held assumptions, and forge bold new solutions. This is where the board of directors comes in—as catalytic forces driving sustainable progress. Comprising distinguished industry experts, inspirational thought leaders, and diverse stakeholder representatives, these councils can inject organisations with invaluable insights, ensuring sustainability remains a unwavering priority amidst the inevitable complexities and short-term pressures organisations face.

Aligning sustainability and financial performance

Effectively integrating sustainability into core business strategies and financial planning is paramount for long-term success. In fact, in 2017, the Business and Sustainable Development Commission estimated that achieving the UN Sustainable Development Goals could create annual market opportunities worth at least $12 trillion for the private sector by 2030. Boards can play a pivotal role here, ensuring that sustainability is not treated as a separate silo, but rather as an integral driver of value creation and risk mitigation. They can equip organisations with a comprehensive understanding of the material sustainability opportunities and risks at hand, as well as provide invaluable counsel on complex issues such as transition finance, divestment timing, carbon credits, and the impact of sustainability initiatives on financial returns.

Catalysing innovations and sustainable solutions

Sustainability demands continuous innovation and the development of sustainable solutions that address pressing environmental, social, and economic challenges. Boards can play a crucial role in fostering creative thinking and disruptive innovation by bringing together diverse perspectives and expertise, stimulating the cross-pollination of ideas, fostering an environment conducive to collaborative problem-solving and sustainable innovation.

One of the most significant benefits of the board lies in its ability to introduce fresh perspectives and challenge organisational inertia. Too often, companies become entrenched in established ways of thinking, hampering their ability to adapt to evolving market dynamics and societal expectations. Boards can counter this by infusing their organisations with external insights, prompting them to reassess their strategies, operations, and value propositions through a sustainability lens.

This approach encourages organisations to explore unconventional approaches to effectively contribute to the business-focused global development agenda and meet the evolving needs of the private and financial sectors.

Supporting strategic decision-making

The path to sustainability is riddled with complexities, trade-offs, and competing stakeholder interests. The board of directors can serve as trusted guides in this intricate landscape, offering invaluable counsel on managing ESG risks, capitalising on sustainable opportunities, and balancing stakeholder needs. Their strategic foresight can enable organisations to anticipate emerging trends, regulatory shifts, and market dynamics, fostering proactive adaptation and resilience.

At the same time, however, many boards can struggle to effectively integrate sustainability into corporate strategy—according to a survey, 91% of directors believe they should allocate more time to the strategic aspects of ESG issues—often defaulting to a narrow focus on hygiene factors, controls, and processes due to regulatory pressure and knowledge gap. To overcome this, boards must evolve their composition and expand their strategic oversight. This includes recruiting members comfortable with uncertainty and complexity, representing diverse stakeholder perspectives, and capable of challenging market norms, and by extension being able to steer the organisation through choppy waters if need be.

Building trust and credibility

In today's environment of heightened scrutiny and stakeholder demands, transparency and accountability are paramount for organisations striving for sustainable practices. Boards should play a pivotal role in upholding these fundamental principles, by instituting robust governance frameworks, and ensuring adherence to sustainability commitments, ethical standards and reporting obligations. They must rigorously scrutinise ESG performance, challenge greenwashing tendencies, and demand tangible, measurable progress towards stated sustainability goals. This open approach enhances organisational reputation, and strengthens relationships with customers, investors and communities—critical for long-term sustainability success.

To be sure, transparency extends beyond sustainability reporting to encompass board composition, processes, and decision-making. Increased disclosure in these areas would demonstrate the board's commitment to sustainable practices and drives productive stakeholder conversations. In fact, a study shows that a sustainable lifestyle is important to at least 78% of US consumers. However, putting sustainability practices into action often needs more than just the bare minimum effort. Research confirms that “the more that leaders try to operationalise sustainability, the more they find their organisations ill equipped for the task — out of alignment and lacking essential skills and metrics.” Ultimately, this is where boards must lend their expertise, independence, and reputational capital to bolster an organisation's sustainable credentials.

Fostering collective action and overcoming barriers

An effective board of directors fosters principled leadership by instilling a strong sense of purpose and ethical accountability. By providing an external, impartial perspective, they can challenge conventional thinking and push for bold, responsible actions aligned with sustainable development goals (SDGs). Several forward-thinking boards are now proactively establishing relationships with individuals who could fulfil anticipated needs well before their potential board tenure, taking a holistic, long-term approach to each board placement.

However, despite the growing demand for enhanced understanding of sustainability, significant changes in board composition have yet to materialise. According to a survey of board members, less than 15% of respondents said that sustainability knowledge and experience was fully integrated into non-executive director searches. When asked what prevented the board from dedicating meaningful time to strategic thinking about sustainability, over 72% of the survey respondents cited the need to prioritise high-priority, non-sustainability topics. Other factors included a lack of understanding regarding the long-term implications of sustainability and the necessity for short-term sustainability matters to take precedence. Boards also require a lot of research into elements of sustainability directly impacting their businesses—a survey shows that only 19% of board members act on sustainability because it severely impacts the way they do business today.

With its wealth of expertise, a board of directors has an unparalleled ability to catalyse transformative change by seamlessly integrating sustainability into core strategies, fostering cross-sector collaboration, and amplifying impactful solutions. Therefore, by leveraging their diverse perspectives, boards can shape policies that incentivise sustainable practices and attract investments that fuel innovation—positioning organisations at the forefront of the sustainability revolution, and unlocking new realms of innovation, resilience and long-term value creation.

Note: This article has been authored by Vipul Kumar, Senior Partner at Xynteo.

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