Insight

Boards must play a pivotal role in driving long-term sustainable business

Climate change will have a negative effect on global businesses, according to nine out of ten leaders of the world’s largest companies. As a result, they have already launched - or are planning to launch – climate and sustainability initiatives. In these global businesses, the board of directors now increasingly focuses on ensuring that long-term sustainable development becomes an integral part of the business.

If you serve on the board of a company, ask yourself:

  • How are climate and environmental challenges affecting the business? 
  • Do we have a complete overview of the investments that the company will have to make in the years ahead to reduce emissions? 
  • How has our board helped to prioritise different climate and sustainability initiatives? Have we integrated the company’s climate target into executives’ short-term and long-term incentive schemes and the company’s performance management systems? 
  • Who is asking challenging questions at board meetings to ensure that climate and sustainability are taken into account when decisions are made? 
  • Who is the knowledgeable or interested board member who can link technology to the company’s climate and sustainability initiatives?

Many companies and boards are starting to ask these questions, and it can be difficult to find the right answers - but investors and customers, in particular, are beginning to demand straight answers. As the world watches the climate crisis unfold, leaders of the world’s largest companies are acknowledging that they need to change their focus and make these challenges their number one priority.

That is the conclusion of a recent survey made by Deloitte, which included over 2,000 global C-suite leaders from 19 countries, among them 50 Danish top leaders. When asked what societal agendas are key to them, these global leaders primarily point to climate and sustainability, including resource scarcity, because they want to secure their future business and maintain good relations with their stakeholders, including investors, customers and suppliers.

Stakeholder capitalism is steadily moving into the boardroom
Companies’ corporate social responsibility efforts around for examples climate, environment, social responsibility and inequality, have increasingly linked into a shared framework since the UN member states adopted the Sustainable Development Goals (SDGs) in 2015. Moreover, investors, authorities, customers and employees increasingly expect companies to run their operations in a sustainable manner. Particularly when it comes to climate and environment.

 

Almost every other global leader today believes that addressing climate change is the number one responsibility of the current generation of leaders.  

This is a significant increase. Two years ago, only one in every ten leaders believed that their company could influence environmental sustainability to a significant degree.

This indicates that business leaders all around the world have embraced a new form of capitalism where climate and social responsibilities are to be measured equally alongside the financial bottom line, and where decisions and investments are aligned with stakeholder interests  framed by increasing pressure from consumers, employees and society at large.

Today, companies are challenged into developing sustainable strategies, governance and business models and sometimes also new products and services. This is both to fight climate change and to build a viable and resilient business in the long term. That is why climate and sustainability are steadily making their way into the boardroom and higher up on the agenda of many companies.

Strategy, data and new technology will drive sustainable impact
This year, we see that boards are focusing very much on purpose, reputation, strategy and stakeholder demands for more credible reporting on social and environmental risks.

It will therefore be important for boards both to have the right strategies in place to be at the forefront of sustainable development and to make sure that the correct data are measured to support the company’s strategic starting point and ensure that the company makes a difference going forward. More and more companies appoint executives to drive these topics in day-to-day operations, such as a Climate Strategy Officer or a Chief Sustainability Officer.

The survey also suggests that although world business leaders take a positive stance on some new technologies, they may overlook how technology, digital solutions and data can help companies contribute to the SDGs. Only every sixth global business leader considers it a priority to invest in new technology such as the ‘Internet of Things’ and artificial intelligence (AI) and to use data strategically and analytically to gain new insights into their business and to assist the board of directors and executives with data-driven decisions on climate and sustainability initiatives.

One cannot help wondering why surprisingly few business leaders appear to embrace the full potential of new technologies.

 

It is the board’s responsibility to ensure that the company’s business strategy remains relevant and supports its long-term sustainable value creation.  

For this, the board must have the capabilities to evaluate the potential of digital solutions. This requires robust dialogue between the board of directors and executives and knowledge-sharing to empower executives to make decisions that allow the business to be agile and sustainable in the long run.

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