Sustainability has become a fundamental prerequisite for doing business. A company’s operations and business models depend on environmental and social inputs such as capital, natural resources, production equipment, and relationships with the outside world. This includes a variety of stakeholders, from legislators and investors to customers and employees.
This means that sustainability is no longer about compliance and ethics, but should be a core part of business strategy. Getting there will require new competencies and skills from the company’s top leaders, especially the board.
Unfortunately, sustainability is not yet fully integrated in this way for most companies. According to his 2021 CEO Survey from consultancy PwC, 60% of his interviewed respondents had not yet incorporated climate change as part of their strategic risk management. Instead, companies more commonly appear to have sustainability or ESG processes designed to handle compliance, ethics, and reporting.
Part of the problem is that too many companies rely on typical three- to five-year time horizons, which are too short to fully integrate the impacts of climate change risks into their business thinking. Boards and management therefore need to be capable and willing to work on much longer time frames in the strategic process.
At the same time, many stakeholders, especially employees, expect CEOs to speak publicly about how their companies contribute to solving sustainability challenges related to them. doing. Not all CEOs are comfortable in this role, treading the fine line between business and politics.But more and more important is the role of leadership to succeed. From a strategic point of view, taking a public stance is likely to benefit the company’s growth if it supports a more sustainable society, and as a result, to the solutions the company can offer. Demand will increase.
deal with complexity
It can certainly get complicated when it comes to managing sustainability. The individual elements of sustainability often involve trade-offs and tensions. For example, while manufacturers have a positive impact in supporting job creation, they often also contribute to increased resource consumption. Addressing overproduction and consumption by investing in digital automation benefits the environment and health, but can inadvertently cost people their lives.
Therefore, competent leadership is required to meet these new management challenges. The ability to handle such complexity becomes critical. This requires the ability to see the situation from multiple perspectives at the same time and the acceptance that most questions don’t have a single solution, but rather both/and.
Board Responsibilities
It is also imperative that boards are able to think in ways that respond to and navigate this duality while taking the strategic importance of sustainability seriously. As with ethics, responsibility and compliance, the role of the board is set to ensure that the company’s processes meet both the hard and soft demands and expectations of stakeholders without being dragged down by rapidly changing opinions. It is to be done.
Boards and management therefore need to have a fundamental level of understanding of the sustainability issues relevant to the company, the stakeholder dynamics and where things are headed. This includes understanding that what is considered good enough today, or the appropriate response to a problem, may be insufficient tomorrow.
Similarly, when corporate strategy is discussed, boards should consider medium- to long-term strategies, such as how changed climate patterns will affect a company’s supply chains and markets, or under what scenarios it will be affected. We need to make sure that social trends are analyzed and included. New legislation is most likely to come into force, presenting risks or opportunities.
A basic understanding of stakeholder dynamics is also beneficial. What does the NGO landscape look like on topics of strategic importance, and how are these impacting consumers and legislators?
So where does sustainability fit on the board in terms of responsibility? Boards are sometimes described as having four main areas of responsibility:
- management: An obligation to act in the company’s best interests, with a long-term view of value creation for shareholders, stakeholders, and society.
- strategy: Ability to define objectives related to the company and set a course that leads to sustainable competitive advantage and value creation.
- Inheritance: Obligation to evaluate and plan succession for the CEO, management team, and board of directors.
- directed by: An obligation to set goals, monitor financial and non-financial performance, assess risk scenarios, and establish risk resilience.
In our view, the S of sustainability should be incorporated into each of these. Doing so informs the process so that it is seen as central to success rather than an afterthought. Shouldn’t be the 5th standalone S.
Boards as challengers and protectors
We believe and hope that the model presented in this paper will help leaders view the topic of sustainability in terms of responsibility, business opportunity, brand value and risk. This can be achieved by addressing questions such as:
- What factors and assumptions are behind the conclusions reached by the analysis presented to the Board?
- If we act on the conclusions of this analysis, are we living up to our values, commitments, and stakeholder expectations? If not, do we understand why and how?
- Are the risks associated with a sustainability crisis in five to ten years time taken into account, and what would access to company resources look like in that situation?
- How can our company benefit from being at the forefront of one or more sustainability topics?
rely on independent analysis
The final call of our book reiterates the need for robust and systematic analysis when considering sustainability issues. This allows the company to have its own documented platform to rely on when meeting stakeholders and their expectations.
Stakeholder and societal expectations are steadily rising, and without a company’s internal analysis and clarification, it is out of control to define which elements of the sustainability agenda are most relevant to the company. tend to
Therefore, in order to maximize short-term value creation, identify and address trade-offs, and make corporate strategy sustainable, sustainability must be taken out of its silos and fully integrated into corporate strategy and fundamental processes. should be integrated into long term. This way the circle is squared.
This is an edited excerpt from the book Squaring the wheel of sustainability by Annette Stube Rene Bjorn Serpa, John Cornerlap Bang, Nigel Salter (Magna, 2022).
