Sustainability is a key issue for boards but should it require specific boardroom skills? Not necessarily, according to one of the world’s biggest investors.

Norges Bank, Norway’s sovereign wealth fund with around $1trn under management, says it does not believe in “prescriptive” standards for specialist skills on boards, believing strict requirements are problematic.

The views come in a letter to the European Commission responding to a consultation on sustainable corporate governance.

Norges Bank’s view is that it should not. “Prescriptive requirements for directors’ ESG expertise will be difficult to implement and may impede board formation,” the letter says.

Signed by Carine Smith Ihenacho, Norges Bank’s chief governance and compliance officer, and Wilhelm Mohn, head of sustainability, the letter says: “The board should guide company strategy, monitor management performance and provide accountability to shareholders.

“This requires the board collectively to have a comprehensive understanding of the company’s industry, business and operational context, including relevant sustainability matters.”

European Green Deal

The European Commission has been collecting views on corporate governance and its relevance to sustainability since October last year and comes as part of the European Green Deal to tackle climate change. The deal specifically mentions that corporate governance should be part of the solution because many companies think “short term”.

“Sustainability should be further embedded into the corporate governance framework,” the Green Deal communication says, “as many companies still focus too much on short-term financial performance compared to their long-term development and sustainability aspects.”

When Board Agenda polled companies across Europe it found that the level of sustainability skills on boards appears to be good.

Around 58% said they had a clear understanding of the risks and opportunities bound up in sustainability issues, while more than two-thirds, 69%, said they had a “good understanding” or “enough” people with the right kind of knowledge.

However, an alarming 12% said they struggle to see how sustainability fits into their strategies. That may indicate difficulties for many companies when it comes to defining sustainability priorities and working them into their strategies. However, companies may have been hampered in displaying their sustainability credentials because of the absence of a universally accepted metrics and reporting systems.

Collective responsibility

The sustainability skills question raises an old debate over boards needing specific expertise, whether it be in climate-related issues or other critical strategic topics such as IT and digitalisation.

While many see benefits in having an expert with specific knowledge inside the boardroom, others see risks. One argument goes that a specialist might find themselves carrying the entire burden for their field of expertise instead of boards assuming collective responsibility—the very issue cited by Norges Bank.

The Commission’s assumption of short-termism among European companies has caused a stir. A succession of academics of published papers arguing that the research underpinning the short-termism claim is faulty.

One group of academics at Harvard described the Commission’s research as containing “deep flaws”,  alleging it “mistakenly conflates” key factors, fails to engage with alternative sources of evidence and “touts cures” backed by “little evidentiary support”.

Skills will always be a question for boards but there is wariness about regulators becoming involved in setting rules. It is now up to the Commission to weigh those warnings.