(Originally published in GreenBiz, March 16, 2023)
Sometimes, if you are like me, it is hard to look at the news or social media in the morning. The war in Ukraine, climate change, the tridemic, disappearing biodiversity, a worldwide cost of living crisis, famines and, oh, did I mention climate change?
Our world faces an unprecedented and barely credible list of monumental challenges. This is a time when we need courage and leadership to steer us all through these toughest of times and into the sunlit uplands.
According to the 2023 Edelman Trust Barometer, businesses are trusted more than NGOs, governments and media to provide that steady hand at the economic tiller. So that means current and future board directors and senior corporate executives must provide much of that bravery and direction for the world. But to do that, we need to shape their boardrooms of the future by choice, not by chance.
Sustainability will play an important role in this boardroom transition. It also formed the theme of “Sustainability in the Future Boardroom,” a tremendous panel session that I thoroughly enjoyed being part of at the recent GreenBiz 23 event in Scottsdale, Arizona. Joining me were Michael Levine, vice president and managing counsel, sustainability, Under Armour; and Mary Francia, partner, H.I. Executive Consulting (who is also part of the advisory board at Competent Boards).
The Future Boardroom initiative, which aims to bring business leaders together from around the world to shape a much-needed transformation at company leadership tables, provoked vigorous discussions at the World Economic Forum annual meeting in Davos, Switzerland, in January, and caused the same effect in Scottsdale. Here are 10 key takeaways from our panel session:
- It is vitally important that governance is embedded into business and board functions so that sustainability work is not just a project or passing fad that disappears with the arrival of a new CEO.
- There are increasing regulatory and reputational risks and consequences for companies and their boards around sustainability and environmental impact. As a result, board directors and senior business leaders must ensure that they have reasonable systems and controls in place to enable oversight and mitigate risks.
- The board’s oversight of the management team is crucial for how sustainability is integrated and brought to life in companies. Board directors need to understand the concept of sustainability to be able to provide effective oversight. To promote true sustainable change, leaders should avoid a compliance mentality, only doing the minimum necessary to be in good order. Instead, they should look to take their companies above and beyond the regulations. For that to be successful, the education process requires continuous learning, feedback and open, regular communications with stakeholders.
- Companies should also be aware of legal developments in different jurisdictions and take immediate steps to mitigate risks. For example, in November, Belgium added ecocide — “unlawful or wanton acts committed with knowledge that there is a substantial likelihood of severe and either widespread or long-term damage to the environment being caused by those acts” — to its penal code.
- Board assessments can help to evaluate the skills and competencies needed in a future boardroom and identify strategic challenges and opportunities. These assessments can also help identify board members who may need to resign or change their skill sets in order to continue providing value to the company.
- Education will play a major role in the transition to a future boardroom. Investors are increasingly zeroing in on directors’ knowledge of sustainability issues and may not vote for those who lack insights and knowledge. Therefore, it is vital to have well-informed board members with sustainability knowledge and skills. Current and future board directors should keep learning by having the courage to take on different roles within the company to gain further experience and knowledge.
- Companies must have competent and conscious individuals serving on committees overseeing sustainability, ESG and climate issues. If board members can proactively rather than reactively address ESG factors, that will also be a major asset for companies in terms of outpacing competitors and creating renewed value.
- ESG is not just about climate risks; it also presents opportunities for companies to create value and sustainability over time. It is essential for companies to ask the right questions and have a team that can provide a view of what the company’s portfolio should look like in the future: what needs to be removed, and what needs to be added.
- Boards need to have a better understanding of operations and sustainability to be able to maximize opportunities and minimize risks. Sustainability should not just be a check-mark exercise, but rather should be embedded into different business functions and processes, including supply chains and value chains.
- Being a board director is not just about dealing with short-term financial goals, but also about being a steward of the company’s finances, its employees and its impact on society and the environment. In order to add sustainability expertise to a board, that individual must understand what the board is looking for, be able to think strategically and understand corporate governance.
We also asked the GreenBiz 23 audience a series of poll questions, with really interesting results from almost 300 responses:
How important is sustainability knowledge as a key consideration in the selection of new board members?
- Not important = 13 percent
- Important = 32 percent
- Very important = 49 percent
- Unsure = 7 percent
What drives sustainable change in the boardroom?
- Investor demand = 56 percent
- Customer demand = 17 percent
- Employee demand = 1 percent
- Regulations = 26 percent
How does ‘today’s’ boardroom get insight to provide oversight on ESG?
- Ask the CSO to join meetings = 32 percent
- Pursue ESG training = 15 percent
- Appoint BoDs with skill set = 36 percent
- Unsure = 17 percent
Do you see new competencies (climate, biodiversity, DEI, human rights, cybersecurity, etc.) as necessary for The Future Boardroom?
- Yes = 90 percent
- No = 5 percent
- Maybe = 5 percent
Will proactive addressing of ESG factors by board members be an asset for a company to outpace competition and add value creation?
- Yes = 86 percent
- No = 0 percent
- Maybe = 14 percent
From the results, it is clear that confusion remains over the best sources of sustainability information for board directors, with appointing people with skill sets (36 percent) and asking the CSO to join meetings (32 percent) closely matched. Almost 1 in 5 respondents were unsure, showing that there are many opportunities for better education here.
On the plus side, the majority of our respondents (81 percent) do see sustainability knowledge as important or very important for future board members. And new competencies to meet the challenges ahead are must-haves.
The discussion around boardroom transitions is only just getting started. Download the Future Boardroom white paper to learn more about why sustainability plays a key role in shaping future boardrooms.
Helle Bank Jorgensen is the founder and CEO of Competent Boards, which offers online climate and ESG education programs from a faculty of more than 180 board members, executives, investors and experts. She is also the author of the Amazon bestseller “Stewards of The Future: A Guide for Competent Boards”.Back To News & Views