The Role of the Board in the Sustainability Era
Heidrick & Struggles | BCG | INSEAD Corporate Governance Centre
The August, 2023 edition of the Hub highlights a survey report developed with the collective efforts of Heidrick & Struggles, BCG and INSEAD Corporate Governance Centre.
The survey finds that boards are adapting, making changes to how they approach their own composition, their governance and process considerations, and the metrics they track. The survey also reveals that boards continue to wrestle with certain challenges, most notably how to integrate sustainability fully into company strategy.
Though fully integrating sustainability into strategy and board operations is complex, there is a clear path forward. First, boards can further sharpen governance by, for example, re-evaluating the makeup of the board, ensuring that deliberations take a long-term perspective, and improving transparency on issues such as director selection and evaluation. Second, the board can carve out time for deep examination of how sustainability will impact the business, digging into issues such as the prospect of scarcity for some critical resources and the opportunity to build new ecosystems to create progress. Third, directors can personally model strong leadership, including by making tough, consequential decisions and bridging the divide, where possible, between various stakeholders on contentious issues that range from balancing climate risk and energy needs to the role of stakeholder capitalism to businesses’ role in addressing societal issues.
- Boards increase focus on sustainability — but the gaps remain
The results of the survey depicts a significant shift in how boards operate. More than two-thirds of respondents (69%) reported that boards’ expanding remit is increasing time requirements for directors. Not surprisingly, the share was higher for directors in the energy (77%) and finance and insurance (74%) sectors, two sectors in which balancing the world’s need for more energy with climate change is creating significant new risks and opportunities.
- Increasing societal expectations are changing how boards operate.
- The majority of directors say sustainability has little financial impact on the business today.
Despite greater attention to meeting societal expectations overall, most boards do not feel financial pressure to act on sustainability issues.
Directors also cited increasing expectations from capital providers including investors and the importance of sustainability in attracting and retaining talent as major motivators of action.
- Requirements for a push for expanded knowledge
Directors in the survey were generally satisfied with their insight on the strategic risks and opportunities sustainability presents, but far fewer were confident in their knowledge about execution.
- 79% confirm a thorough understanding of strategic risks and opportunities
- 29% feel knowledgeable enough to challenge or monitor execution
The knowledge gap is substantial across nearly every sector, though it is smallest by far in energy, where 44% of directors completely agreed that they have sufficient executional knowledge.
- Boards heavy reliance on internal company sources for information
As it relates to sustainability specifically, most board members said they spend sufficient time on reports from the executive team, reviewing reporting, and reviewing progress toward goals. And a slim majority said the same about time spent discussing risks and opportunities. But the same cannot be said for time the board spent on reports from external sources. The push for expanded insight on sustainability, however, is not yet leading to major changes in board composition.
- Miscellaneous highlights of the survey-
- Sustainability is still not fully integrated into board selection criteria
- Directors believe sustainability should be more integrated across the board agenda
- Other topics, not related to sustainability, are crowding out time for strategic thinking
- Less clarity about future shocks
- Directors at leading-edge companies devote more time to strategic risks and opportunities
- Directors at leading-edge companies have greater understanding of long-term trends
- Digging deep on the strategic issues
- Modeling strong personal leadership
Click here to access the original survey report- 
Note: IICA duly acknowledge the ownership / authorship of the survey report and publishing the same solely for educational purpose of Independent Directors.
