Implementing ESG or sustainability initiatives requires the commitment and support of the board of directors. So, how do you get the Board on board for sustainability?
In our 2023 sustainability webinar series, Aletta Boshoff, BDO's National Leader for ESG & Sustainability, explores some popular sustainability standards, goals and frameworks while sharing insights to help organisations on their sustainability journey. Here, we highlight the key themes from our latest event: Getting the Board on board – The business case for sustainability.
Sustainability has become an imperative for businesses around the world. As societal expectations and regulatory pressures increase, organisations are increasingly aware that they must prioritise environmental, social and governance (ESG) practices to ensure long-term success. However, implementing ESG or sustainability initiatives requires the commitment and support of the board of directors. So, how do you get the Board on board for sustainability?
It is crucial to present a compelling business case to garner board support, including showcasing the opportunity for sustainability initiatives to enhance the company's bottom line, mitigate risks, and drive innovation.
The role of the board
Amid a dynamic regulatory landscape and rapidly evolving stakeholder demands, it's essential to acknowledge and frame the board's primary responsibility to oversee the organisation's adoption of sustainability practices within its mandate.
Similar to its broader remit and corporate culture, boards have a responsibility for many aspects when it comes to ESG, including:
- Establishing the tone from the top around the importance of sustainability to the organisation, and the establishment and communication of ESG objectives
- Defining the oversight responsibility and board committee structure – be it allocated within existing structures, for example, the audit and risk committee, or by establishing new
- Identifying, monitoring and overseeing the management of non-financial risks, including chronic and acute climate-related risks
- Being alert to controls over data quality for more practical information management, decision making and reporting
- Establishing management accountability criteria and integration of ESG objectives into overall corporate strategy
- Ensuring communication and reporting reflect prioritised ESG factors related to objectives and progress tracking.
Failure to establish and fulfil these duties can alienate stakeholders, draw unwanted regulatory scrutiny, or jeopardise customer and employee loyalty.
Designing sustainability oversight and structure
Integrating sustainability into corporate strategy begins with establishing sustainability as a company priority through incorporation with the company strategy and establishing an agreed governance structure.
Approaches differ from making it a whole of board accountability, establishing a dedicated board sub-committee or assigning responsibility to an existing reporting line, often the audit and risk committee.
The 'right' approach differs for each organisation, requiring an understanding and assessment of:
- The organisation's material risks
- Existing governance structures
- Available resources
- Experience, knowledge and skillsets of directors.
Some key considerations for boards to take into account when establishing the structure include ensuring:
- All ESG risks are identified and addressed in the corporate strategy
- ESG roles and responsibilities are formally established and executed appropriately by directors
- The board has appropriate director composition to oversee sustainability matters
- Effective communication is enabled among the board, committees and management
- Accountability for director oversight and management execution can be achieved
- Continuous learning and education across all levels of the organisation.
As always, documenting the agreed approach, accountabilities, and responsibilities is crucial regardless of whether ESG governance utilises existing committees or requires the establishment of a new committee.
Connecting purpose to sustainability
Integrating sustainability into the core of the corporate strategy is paramount.
Start by aligning sustainability goals with the overall business strategy to ensure buy-in from the board. By illustrating how sustainability initiatives can enhance the company's competitiveness, attract investors, and foster long-term growth, directors are more likely to recognise sustainability's value proposition. Additionally, embedding sustainability goals into key performance indicators (KPIs) and executive compensation can further emphasise the board's commitment to sustainable practices.
Boards expect sound project management, metrics and KPIs, supported by processes and controls that will drive the relevant progress in ESG. Organisations lacking the metrics to measure and monitor progress, or gauge risk, may leave board members short in the evaluation of ESG for investment decisions, appropriate disclosures or performance review.
In many cases, the Chief Financial Officer or Chief Sustainability Officer may lead a multi-disciplinary team in developing strategies to achieve ESG objectives. Plans should be vetted with the board to ensure alignment between corporate purpose, sustainability objectives and the business strategy.
Bringing the classroom to the boardroom
Board directors and management teams rely on continuing education to ensure up-to-date knowledge of the opportunities, trends and emerging risks impacting the industry. ESG is no different.
There are various ways to approach this, including building internal competency with formal training, direct recruitment for specific skillsets to augment existing expertise or engagement of expert advisers from outside the business.
Boards typically work closely with management to find the formula best suited to the organisation.
Regardless, board members must also be able to demonstrate their understanding of the business' emerging risks to ensure they are actively engaged with management so that such risks are proactively addressed. Ongoing education and stakeholder engagement will support a more nuanced understanding of the issues and prioritise sustainable outcomes.
Roadmap to ESG oversight
Once you’ve got the Board on board, you’ll need to establish and agree on an action plan. This simple five-step roadmap can help to guide the way.
Here to help
In a rapidly changing business landscape, sustainability has evolved from a buzzword to a fundamental driver of success. Getting the Board on board for sustainability is pivotal in driving meaningful change within organisations.
Our sustainability services team can support your team on its sustainability journey. Contact us today.
Sustainability and ESG webinar series
BDO is pleased to bring you our sustainability and ESG webinar series.