Organizational Governance Organizational Governance

How Can Boards Successfully Guide a Transition to Sustainable Business?

A well-structured sustainability committee not only serves a critical coordinating function, but also steers sustainability right to the heart of the company and the company’s strategy. Let’s take a look at how boards at some of the world’s leading companies have tackled this.

Brand Provided | By Marga Hoek | Published 4 years ago | About a 5 minute read

Image: You X Ventures/Unsplash

The UN’s Sustainable Development Goals are set to unlock $12 trillion in new business opportunities by 2030. Yet many companies are still stuck in the past. Over the next decade, businesses can either adapt and thrive or deny and die. But change must come from the top.

It’s essential that boards develop a broader, more holistic view to secure long-term value creation. The question should not only be: Are our products and business models profitable? It should be: Are our products and business models future-proof?

When answering that question, it becomes abundantly clear that future-proofing your business requires every business to put sustainability and technology at their core. Over the next decade, technology will be key to driving sustainable change.

Nestlé

Nestlé recognized the significance of sustainability and installed a combined nomination and sustainability committee. The committee ensures managerial sustainability and oversees the long-term succession planning of the Board. It also looks at how the business’ long-term strategy relates to its ability to create shared value. It is interesting to see that Nestlé recognized that long-term succession planning and sustainability are intertwined. Even more importantly, the Board structure demonstrates Nestlé’s recognition that sustainability presents both risks and opportunities, which are to be pursued by a shared-value business model.

DSM

Nestlé isn’t the only company paving the way. DSM also demonstrates future-proof thinking and behaviour. DSM’s Supervisory Board appointed its own Sustainability Committee in 2009 to supervise the Managing Board on sustainability matters. In addition, in 2011 the company established an external Sustainability Advisory Board — a diverse, international group of thought leaders to help deepen the company’s understanding of sustainability topics such as malnutrition, climate change, inequality and renewable energy. The company recognized that such in-depth understanding was crucial if it was going to really understand external stakeholder needs, conduct advocacy efforts and handle dilemmas.

Unilever

Unilever also installed a corporate responsibility committee in its Non-Executive Board. The committee oversees Unilever’s conduct as a responsible business, along with its sustainability and corporate reputation. The committee monitors progress on Unilever’s Sustainable Living Plan, its overall sustainability plan, and reports back to the other Board Members — thus ensuring that sustainable thinking and behaviour is embedded in the board as a whole. Like DSM and Nestlé, Unilever also recognizes the market potential of sustainability and applies it to its investment schemes. Acknowledging that sustainable brands outperform their non-sustainable peers and grow 69 percent faster, their focus has shifted to a shared value approach. Brands at Unilever need to perform on a sustainability basis, or will be sold off; and only sustainable brands — such as the Vegetarian Butcher — are bought. Thus, the M&A agenda is also driven by this same shared-value approach. These things can only be done successfully if the top of the company — both the Executive and the Non-Executive Board — is set up for sustainability success.

Internal sustainability committees

The case studies we’ve discussed so far mainly demonstrate how external, independent, non-executive directors are used to drive sustainability. However, situations also exist where an internal sustainability board supports the CEO. This can be valuable — yet, one must always bear in mind how important it is to get an outside view into your company, as well as mobilizing action internally. For instance, Sembcorp Industries has a sustainability committee, chaired by its Chief Financial Officer; while StarHub’s committee is chaired by its Chief Marketing Officer. Although valuable, internal committees tend to have a different objective to committees operating on a non-executive level. One does not exclude the other!

So, which route works best? This depends on the stage the company is at in its transition towards sustainable business practices. The end result needs to be a total integration of sustainable business practices into the company — not a separate committee. Ørsted was recently named as the most sustainable company in the world in 2020 by Corporate Knights. Its chairman, Thomas Thune Andersen, is fully bought into sustainability and no doubt selects board members on their ability to integrate sustainable thinking and action into all their roles. Yet, most companies are at the beginning of the sustainability journey. As a result, they need the driving force of a sustainability committee or even of serval committees — such as a non-executive board, as well as an advisory council with external experts and/or an internal board at executive level.

10 tips for boards

To develop a robust overview and ensure long-term value creation, companies should:

Define long-term value creation/sustainability as a priority for the board
Formalize this in board charters and governance
Integrate this into the board’s agenda
Form a sustainability committee chaired by a senior member of the organisation — both in terms of their business experience and sustainability experience
See sustainability as an integrated part of the business — not as a separate, stand-alone agenda point
Incorporate sustainability into company strategy and (annual) targets, as well as demanding adequate reporting
Materialize all objectives and targets, so the Board is able to oversee progress
Boards should be informed about the good and the bad. The root cause of any negative incidents or underperformance should be analysed. When something has worked, it’s also important to analyse why it has worked. Both are important!
Include both the risk angle and the opportunity angle in the Boards’ role, and do so with a shared-value perspective
Last but not least: Educate all Board Members!