On April 22, the world celebrated Earth Day. The message of this year’s event was: Everyone accounted for and everyone accountable. The initiative encourages governments, businesses, and the general public to invest in our planet and become part of the green revolution. Earth Day is an annual reminder for companies and organizations to challenge their Environmental, Social, and Governance (ESG) strategies.
Finding the right strategy
When collaborating on challenges as big as the risks and opportunities of climate change, the board and management should define and align their sustainability responsibilities. That is easier said than done. What are the roles and tasks of the board versus management when it comes to ESG initiatives? What does success look like in regard to sustainability? What governance structure works best to integrate sustainability practices? Finding the right frameworks and key performance indicators (KPIs) is often iterative.
As corporations become increasingly accountable for their environmental impact, the board’s role in sustainability leadership unfolds on three levels: education, strategy alignment, and implementation. Sharing sustainability oversight between board and management is currently the most common structure at corporations, according to a 2022 survey. Only 17% of companies put sustainability targets entirely in the hands of executive management (1%) versus the board (16%). 79% of companies take a shared approach, with 34% dividing the responsibility of the sustainability strategy equally. The majority (39%) of organizations expect input from the board but appoint management to take the lead.
Educating directors
When a board is driving the sustainability agenda, or sharing the responsibility equally with management, educating the individual directors on risks and opportunities involving sustainability is essential. In order for a corporate board to have a productive discussion on the company’s green strategy, the directors need to gain a baseline understanding of the expectations of stakeholders with regard to sustainability. The board needs to be equipped with on-topic knowledge and tools. However, individual directors don’t need to be ESG experts. When more deep expertise is required, a company can also choose to add a director to the board with extensive experience in the field.
Not one size fits all.
One approach to sustainability leadership is putting prioritization, oversight, and disclosure under the control of the board of directors, while integration, management, and ratification are carried out by the executive team. In the US, about 10% of public company boards have a separate committee in charge of sustainability or corporate responsibility. This multi-committee responsibility model is often recommended for companies in the defining stages of their ESG strategy. Having specialty committees for complicated challenges allows for a deep-dive into the subject without requiring too many structural changes on the board or management.
While sustainability is on the agenda of many boardrooms, the framework in which to operate is not set in stone. Aligning the methods and processes to tackle the company’s sustainability strategy is crucial yet far from straightforward. With more than 90% of boards of ESG-conscious corporations involved in sustainability oversight, it is clear that board members and aspiring directors should continuously educate themselves on the green revolution.
At Corporate Boards USA, our mission is to prepare executives to be highly qualified board candidates. We offer our members educational courses and events, networking opportunities, boardroom news, workshops, and mentorship programs. If you’re serious about getting on the path to the boardroom, apply for membership. We Make You Board Ready.