The climate crisis means companies must become sustainable, but are their boardrooms up to the job? New research suggests many are not.
The Sustainability Board Report (SBR), a think tank, has looked at the 100 largest companies in the Fortune 2000 and found an increase in the number of board sustainability committees and a small rise in the number of directors with “sustainability credentials”.
Looking at the 275 directors on sustainability committees across the 100 companies, SBR found that just 48 have “explicit” sustainability expertise. SBR points out that’s just 17% and an increase of only two percentage points on 2019.
This low number is a worry for SBR, and prompts at least one commentator to observe that corporates could be at greater risk of litigation unless their boards are able to provide the first line of defence on sustainability with the right skillsets.
“Not only does this highlight a concerning lack of specific sustainability knowledge among board members, it also suggests that progress is far too slow,” SBR’s report concludes.
This appears to chime with findings from a risk survey undertaken by Board Agenda, Mazars and INSEAD, which saw respondents rank sustainability last out of nine risks in order of priority, while only 34% could say they had the right knowledge to deal with climate change issues. Meanwhile, 91% and 88% said they had the right knowledge to deal with finance and regulation respectively.
Sustainability skills gap
Some commentators are even more emphatic about their concerns around the lack of board sustainability knowledge. In an article appended to the SBR report, Helle Bank Jørgensen, chief executive of advisory firm Competent Boards, asks how board members can pose the right questions about sustainability without “sustainability, climate and ESG insight”.
Sustainability committees, she argues, require “ESG-competent directors” with the skills to lead their fellow directors through “complex trade-offs, balancing acts and dilemmas”.
She offers a warning. “There is no doubt in my mind that we will see more litigation related to how the board of directors handle climate, ESG and other sustainability matters.
“Having ESG-competent boards is the first line of defence and a way to stay ahead of changing compliance norms. It is also a way to ensure a more resilient and innovative company with admirable impact.”
Wouter Scheepens of the TIAS Business School in Tilburg casts doubt on increasing reliance on sustainability standards and measure as a means of galvanising more companies to integrate sustainability into their models. Standards and metrics, he says, will not be enough to help companies get out of their “sustainability deadlock”.
“A different starting point is needed. It is defining the purpose of the company and putting society at the heart of what the business does. Not as a side note, but as a core objective.
“It is crucial for boards to understand that the success of their company in the market depends on the positive impact it has on society.”
Despite the Covid-19 pandemic, the climate crisis and sustainability remains the world’s most pressing issue. Expect more pressure on company directors to know their stuff.