Boards around the world may not feel incentivised to act on sustainability issues because many believe these have no bearing on their financial performance at the current time.
A survey finds 68% of directors polled in 25 countries say that sustainability considerations had “no effect” or a “slight effect” on performance. The same poll did, however, reveal that 52% of those questioned have acted on sustainability because “it is the right thing to do”.
The survey, The Role of the Board in the Sustainability Era, conducted by headhunters Heidrick & Struggles, Boston Consulting and business school INSEAD, leaves the researchers concerned that, despite widespread acceptance of sustainability, “a self-declared lack of expertise at the board level has revealed a between intentions and prioritisation”.
According to Alice Breeden, a co-leader of Heidrick’s CEO and board service, boards need expertise that goes beyond the operational and financial health of companies, particularly against a backdrop of economic uncertainty and “rising social activism”.
“If progress on sustainability is to improve, it is clear that further education, broader director diversity and greater prioritisation of ESG in the boardroom must be standardised to meet the challenge.”
Ron Soonieus, co-author of the report, an adviser at Boston Consulting and director at INSEAD, worries that the current wave of regulation, as well as investor pressure, may be causing a backlash among directors.
“This triggers risk-averse and defensive behaviour, leading to organisations that only do the bare minimum,” he says. “Only 34% of those questioned could say they have an understanding of how the company’s future value will be affected by long-term trends.”
Worryingly, 48% of directors said “knowledge or experience” with sustainability is either “not at all” or just “slightly” part of the skills requirement for board selection.
Sonia Tatar, executive director at INSEAD, says: “More than ever, the weighted responsibility on boards is pointing to the imperative for targeted education to bridge the knowledge gaps which are fundamental in driving governance transformation…”
ESG and sustainability may be at something of a crossroads when it comes to policy inside organisations. Pressure groups and campaign organisations worry that it has become a superficial exercise. Last week, it emerged that litigation against companies for “climate washing” was on the rise.
Meanwhile, regulatory pressure is mounting. Last week also saw the release of new climate reporting standards from the International Sustainability Standards Board, sister body to International Accounting Standards Board.
While the new standards have yet to see widespread adoption around the world, the body’s credibility—and pledges from countries such as the UK—could see them become mandatory practice around the world in the short to medium term.
Training bodies are springing up to offer boardroom training and education and though many are successful, the message may still be slow in permeating all boardrooms to a meaningful level.
Some providers are optimistic. Helle Bank Jørgensen , author of the book Stewards of the Future and chief executive of Competent Boards, told Board Agenda that, despite a backlash, momentum was pushing through the ESG agenda in many companies. However, she says “many many more” directors need to be educated.