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.
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.
Nestlé
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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
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Last but not least: Educate all Board Members!
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Marga Hoek is an international figurehead on sustainable business and capital.
Published Apr 27, 2020 2pm EDT / 11am PDT / 7pm BST / 8pm CEST