A report released recently by Egon Zehnder, the world’s preeminent leadership advisory firm, has found that while boards are prioritizing sustainability, there is much room for improvement – and getting the right composition, culture, mindset and skills are key for driving environmental, social and governance (ESG) agendas.
The study, “Boards: Stepping Up as Stewards of Sustainability,” which draws on insights from The 2022 Sustainability Board Report, found that just over a quarter of the directors were members of a relevant committee and 45% of committees were assessed to be engaged with environmental, social and governance (ESG) issues.
Ahead of COP 27, the study charts a path for boards, finding that diverse boards with a culture of courage, a divergence of skills, and a flexible mindset can extend this focus to put environmental, social and governance (ESG) at the core of how they do business.
How can firms increase their sustainability engagement?
- Move ESG to the core of board activities. This requires a board, guided by the chair, to embrace a flexible approach, knowing that plans will change as the journey evolves.
- Embrace ESG board education and self-reflection. While training sessions and expert consultations are useful tools at the beginning of the sustainability journey, board members need to take it upon themselves to be curious and stay on top of relevant ESG issues.
- Ensure diversity of age and gender to challenge mindsets. The survey found that diversified boards tend to function better than homogenous entities. While there has been improvement in the gender mix, companies would benefit from adding younger people to their boards, to gain a wide range of perspectives.
- Shake up culture & board dynamics. Being cognisant of the potential of diverse, courageous, & visionary boards is an important step on the path to sustainability. Boards should challenge current practices and brainstorm new ways of operating with ESG at the core.
Jill Ader, said, “There is a bravery in refusing incrementalism. Give boards the option to go far, and then the option to go further, and they’ll likely take the further option.”
What were the key findings of this study?
- Most boards are aware of the sustainability challenge and are at different stages of engaging with their stewardship roles on driving ESG integration. They do not, however, have the skills and knowledge to fully integrate sustainability into the boards’ activities and responsibilities. Making step changes in how the board functions requires vision and courage.
- The findings highlight a link between diversity and ESG engagement, and notably that women and younger board members have a positive effect on corporate sustainability. A sustainability-engaged board also requires the right mix of individuals.
- 4 actions are identified to increase board maturity on sustainability. These are moving ESG to the core of board activities, rather than being a sideline activity; developing board members through education and exposure; challenging mindsets by increasing diversity; and shaking up board dynamics by ensuring the right blend of individuals on the board.
- Individuals differ in terms of their understanding of & engagement with sustainability. Board members may include those with a passion in sustainability but are unlikely to drive action; those having some interest in individual sustainability topics or solutions; those who will drive change in the firm; & as those engaging with sustainability as a systemic challenge.
Boards increasingly need those further down this “span of influence” to meaningfully integrate sustainability into their activities and decisions. Egon Zehnder‘s stewardship assessment framework can help identify ways in which individuals can bring value to the board.