Saving the planet is in the hands of company boards and the time to act is right now.

What we are experiencing now is a paradigm shift in the thinking required from those whose role it is to govern companies. As a series of megatrends collide, including technological and social changes, as well as climate change, company directors must equip firms to operate effectively within this highly complex and risky environment, and many are failing to do so.

This week, INSEAD hosted a governance discussion entitled, “Towards Sustainability: A New Curriculum for Boards”, organised in conjunction with the World Business Council for Sustainable Development (WBCSD). Speakers included Lise Kinga from the UN Global Compact, CEOs and ex-CEOs who are committed evangelists for sustainability, as well as businesses leaders and experienced non-executives who are leading the discussion in board rooms across the world. For those of us watching this space and hoping for the topic to become mainstream, it was a promising scene.

Here I outline some of the practical guidance from that discussion that can assist any company director in applying best practice.

1. Get educated;
2. Ask (the right) questions;
3. Watch out for pitfalls;
4. Be ready to step up to a new level of excellence;
5. Celebrate success and inspire others.

1. Get educated

Many in the room were aware of some of the challenges related to sustainability but few had grasped the radical shift that is being experienced and the requirement for urgent action. The need for further information and understanding was clear.

The basic message that existing lifestyles take us way beyond planetary boundaries, and the effects of this are already being seen in increased global temperatures, water shortages, and extreme weather events. Where it gets really interesting is in the interplay between physical effects and geopolitical events, such as the Arab spring and Mediterranean migration, which are already now being greatly exacerbated by climate change.

Understanding the existing context and interpreting future changes, therefore, requires mastery of two main groups of ideas. Firstly, the science of natural capital and the ideas around human and social capital and how these relate to our economy, including an acceptance that this is a business imperative to understand. Secondly, a systemic mindset that can interpret the implications of weak signals, emerging issues that may become significant in the future, calling for a radical response from the business.

The first key reference on this intellectual journey is the 17 sustainable development goals (SDGs) from the United Nations. These have become the defacto framework for considering risks and an aspiration for a minimum standard for growth which any company should feel able to support. They include the global eradication of poverty and hunger, gender equality, as well as environmental goals, such as life below water and on land.

When considering which of these goals are relevant to a given company, directors should consider not just direct operations but also supply chains and downstream impacts, as well as the broadest definitions of corporate stakeholders. This exercise is an opportunity to step away from short term investor concerns and take a holistic and long-term strategic perspective that is informed by the fundamental purpose of that company in society.

Beyond this, the WBCSD provides generally accepted frameworks for business to identify, measure and value its impacts and dependencies on natural, social and human capital. There are two key documents for this, the Natural Capital Protocol and the Social and Human Capital Protocol.

In addition, the organisation has published a consultation draft of the ESG Disclosure Handbook, a document that offers guidance and process to help companies navigate the many choices associated with ESG reporting.

The handbook helps those responsible for reporting to navigate the information needs of multiple stakeholders, understand multiple reporting provisions, set internal and external objectives for reporting, address concerns about reporting volume and clutter obscuring important information as well as avoid the dangers of boilerplate reporting.

2. Ask (the right) questions

Some of the most impactful initiatives on sustainability are those supported, or even initiated, by probing questions from the board. Inquiry from the top can earn those on the ground who are working on these issues valuable legitimacy and send signals regarding the culture and focus of a company.

Whilst the complexity of environmental, social and governance issues and the associated steep learning curve can make it intimidating for a relative newcomer to ask questions, it is important that they take the plunge. Here are a few suggestions that constructively address a director’s fiduciary duty.

Are the effects of climate change impacting on our business? What are our governance structures for environmental, social and governance risks? Are these the same as for other risks? How integrated is the risk management framework with the sustainability team? Do we know our impacts and dependencies on natural, social and human capital? Are we fully disclosing the environmental, social and governance risks that are material to our business?

Going on beyond these, board members should embrace the collective learning journey of moving to more sustainable models and remember that perfection is the enemy of the good.

3. Watch out for pitfalls

However, there are tell-tale signs when a board is losing its way in effectively tackling sustainability issues. Here they are as a watch list both for those on boards and those assessing their effectiveness on these issues:

• Greenwashing or positive spin
• Cherry picking areas of focus
• Gaps in knowledge
• Don’t ask, don’t tell
• No bold targets
• Hoping risks don’t crystallise
• Claiming to be in line with industry norms

4. Be ready to step up to a new level of excellence

High performing boards must collectively overcome 5 different types of challenges, says Ludo Van Der Heyden, INSEAD’s Chaired Professor in Corporate Governance. The gaps that these challenges uncover become even starker in the context of increasing complexity.

1. Inspirational skills: finding and conveying meaning to others;
2. Rational or logical skills, the competency to understand key topics;
3. Time, managing and using it effectively;
4. Physical skills;
5. Emotional and relational skills.

The aim of the board should be to add value to environmental, social and governance questions. In order to be effective at this, all the dimensions have to have the energy of the board.

Simultaneously, boards must become masters and orchestrators of change management. Firstly, boards should engage and see the sustainability challenge and frame it for the business, setting a tone from the very top of the organisation. This must include assessing board members for their competence on sustainability issues and explicitly including these in recruitment mandates to ensure that the right people and skills are present at the table.

The board should then take a role in generating, exploring and eliminating strategic options and be clear that the company can be very bold about the options it considers. With these options in hand, the societal and environmental imperative calls for a good board to challenge itself to adopt nothing less than a visionary stance.

Armed with this farsighted aim, it must then be clearly communicated and explained to management and wider stakeholders, including investors, to bring everyone on board. Key to effectiveness at this stage is a sensitivity to the varying degrees of understanding and appreciation for the complex issues at stake, as well as how they relate to the strategy of the organisation itself.

In preparing for the execution of the vision, expectations should also be quantified, where possible, and accompanied by clear incentives to deliver on these. Here, new attention to non-financial reporting and the drivers of results is often required, taking these on a par with financial measures, particularly where materiality is clearly identified, and to align communications with the newly defined goals. Management must understand these changes and be properly incentivised to make them.

Furthermore, it is critical to set an expectation that a decision to change often starts with growing pains, in the form of setbacks and unexpected outcomes, before a phase of consistent learning and progress begins. Here, culture has a key role to play in allowing for that initial experimentation and failure in service of a greater goal.

Once the strategy has become a shared aim, with clear expectations for outcomes and process, implementation follows and the shared journey of learning and growth begins. For a firm, a transformation to a more sustainable version of itself is as much an organisational change as a series of individual personal evolutions. Each builds a stronger relationship with purpose and how this can be expressed within societal and planetary boundaries, as we learn to better understand them. It is as much a test of character as it is of intellect.

In the last phase of change management, the board is called to assess the implementation, to see what has gone well and where there is room for improvement. As it is with such a range of complex and changing issues, the context will have surely changed since plans were made. Here is where the skill and foresight of the board in adapting to change will be a true measure of excellent governance.

5. Share stories, celebrate success and inspire others

With such a giant challenge ahead of us the corporate world desperately needs individuals who can show leadership on these issues. These means having the courage to act, sharing the experience of change to inspire and inform others and encourage others to come on the journey too.

One example of such a leader is the CEO of Firmenich, Gilbert Ghostine, who has challenged his leadership team to meet ambitious goals for change, in line with the goals of the Paris agreement, 2015. In spite of running a growing company in a buoyant market, Ghostine has committed to absolute reductions in emissions across all areas of the firm. Directly generated and bought in emissions will be reduced by 39% by 2030 and supply chain emissions by at least 20%.

Leaning on the fragrance firm’s inclusive capitalism model, he has fostered a culture of dialogue and collaboration that chimes well with the ethics of sustainable business. By putting customers first among all stakeholders and setting clear, measurable goals for the firm’s operations, the pressure is on management to find solutions that meet these ambitious targets.

The results of this approach have been pretty good. By last year, within three years of the commitment, the firm was running on 100% renewable power in Europe and the United States. It now aims to 100% renewable power globally by 2020, reducing scope 2 emissions to zero.

Among other ambitions for 2020, there are water goals, a reduction in the rate of usage of 25% in water-stressed areas, and a commitment to completely eliminate waste to landfill from manufacturing operations by 2020. The firm believes that innovation is key to reaching those goals and makes this a priority internally.

The indirect results of this initiative are that Firmenich has taken a position of supply chain leadership in the fragrance and taste industry. As a Carbon Disclosure Project Supplier Engagement Leader, the firm ties climate change ambitions to procurement and supports the industry to improve environmental performance. Ecovadis has provided the company with a Gold CSR rating, reflecting industry-leading performance.

Employees are proud of the progress and commitment too. Firmenich enjoys an enviable position in recruiting young and talented staff, in part because of the public commitments it has made and the culture that has made them possible. As an EDGE globally certified gender equality employer, female employees can find comfort that their contribution and remuneration is being measured and benchmarked against those of male colleagues. In an employment market that desperately competes to attract and retain the best talent, aligning with sustainability values has provided Firmenich with an ace card.

Brigitte Small assists results-oriented firms in taking a strategic response to sustainability challenges.

About the publisher

Ampersand is an advisory firm that specialises in strategic and managerial challenges, predominantly in financial services. Our work centres on financial and digital product design, the resolution and implementation of complex change initiatives and sustainable finance.

Our mission is to accelerate the transition to a just, low carbon economy.

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