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Perspectives

Sustainability and the board: What do directors need to know in 2018?

On the board’s agenda

Deloitte sees sustainability securing more time at and in between board meetings, in part because there is no single, standardized approach to incorporating ESG into boardroom discussions on business strategy and risk. The stakes are high, and directors need to act now to recognize sustainability as a fundamental element of their stewardship and fiduciary role.

Published by Deloitte’s Global Center for Corporate Governance

March 2018

Sustainability, which encompasses environmental, social, and governance (ESG) concerns, is increasingly positioned at the top of board agendas. Although it might not be the first boardroom topic you think of, sustainability is now central to corporate competitiveness and a company’s continued ability to operate. Traditionally encompassing topics as varied as environmental disasters, labor relations, safety incidents, or scandals, sustainability affects all sectors and challenges even the most progressive companies and the most thoughtful directors.

With growing investor attention to sustainability, there is an often greater emphasis on the governance element of ESG and the board’s fiduciary duty to oversee a company’s strategy, risk, and capital allocation. Enterprise risk management (ERM) is a central avenue for expanding the company’s consideration of those risks posed by environmental and societal trends as well as changing stakeholder expectations that can, and increasingly do, impact a company’s ability to achieve its strategic objectives.

Expanding ERM to include ESG risks can help connect risk, strategy, and decision making and can make companies more resilient and competitive. A more robust integration of ESG risks into broader ERM practices can promote measurement and disclosure of meaningful ESG information and enable management and the board to assess overall resource needs and allocate capital more effectively.

Sustainability and the board: What do directors need to know in 2018?

Why is sustainability a board-level risk?

On a global scale, the directors of public companies are facing challenges from investors and other stakeholders to be proactive in evaluating competitive threats and understanding disruptive market trends, which include environmental and societal concerns. Board oversight is central to investor trust and confidence in an organization’s future performance.

Directors have an important role to play in defining the organization’s critical stakeholders and overseeing how the strategy and risk management practices meet the needs of broader stakeholders as a means to driving shareholder value. Directors can enable more effective engagement with investors by fostering more proactive identification, measurement, and disclosure of ESG risks that provide insight into how the organization is integrating sustainability and changing stakeholder expectations into risk and strategy.

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