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E-MailLaura Sanderson co-leads the Board and CEO Advisory Partners in Europe and Sarah Galloway and Kurt Harrison are co-heads of Global Sustainability Practice at Russell Reynolds Associates. This post is based on their Russell Reynolds memorandum. Related research from the Program on Corporate Governance includes The Perils and Questionable Promise of ESG-Based Compensation (discussed on the Forum here) by Lucian A. Bebchuk and Roberto Tallarita.
How can boards boost corporate sustainability? Often, when boards decide to increase their focus on sustainability, they struggle to agree on what steps to take and how much effort to put into those first actions.
To help guide these decisions, we’ve examined our research into sustainable leadership and defined 10 actions for boards. They show how boards can build the culture, purpose, strategy, risk alignment, structure, and processes to enhance corporate sustainability.
What’s more, we’ve also found that quickly going all-in on these efforts results in stronger long-term performance.
When assessing how organizations developed their diversity, equity, and inclusion (DE&I) efforts—a critical element of corporate sustainability—we learned that most companies take a linear approach over five to 10 years. But a small group invested heavily upfront. These fast-track companies quickly outpaced traditional ones, reaching maturity in about half the time.
The lesson for boards? Be bold.
1. Proactively engage with external stakeholders about sustainability
Investors, regulators, and other stakeholders need to know the board is more than supportive of corporate sustainability. They need to see it as an active partner in positioning the company to be sustainable.
A board that’s authentic when discussing its sustainability goals, and progress toward them, helps prove the credibility and maturity of the organization’s sustainability efforts.
2. Embed sustainability into all discussions with the CEO and executive team
While external stakeholder conversations are essential, they’re meaningless unless the board collaborates with its CEO and other senior executives on sustainability.
Sustainability is a complex issue that will take iterative work to deliver, so directors must embed sustainability into all their discussions with the CEO and executive team. By ensuring the topic is constantly top-of-mind, executives will think of sustainability as part of their remit, even when it’s not an explicit task.
3. Establish a purpose-driven culture
The CEO and executive team aren’t the only ones who must have a constant focus on sustainability. Directors need to approach their work with a similar sense of purpose.
If the board doesn’t have a sustainable culture, no amount of structure or processes will make up for its absence. Every member of the board should view the company and its operations through a sustainability lens and feel comfortable talking about sustainability in any conversation.
4. Educate directors on sustainability
To enable a sustainable culture, boards must continuously educate directors on the evolving shape of sustainability around the world. The goal isn’t for the board to become sustainability experts, but rather to have a baseline understanding of how sustainability can create value and reduce risk so they can have informed discussions.
The nature of this education will vary by company and sustainability priorities but should revolve around understanding the perspectives and experiences of all stakeholders.
5. Apply a sustainability lens to corporate strategy decision-making
Sustainability can’t be a separate strategy. It must be part of all aspects of corporate strategy.
While the executive team develops the corporate strategy, the board needs to engage in its creation to ensure it captures the potential benefits and risks of sustainability.
6. Set goals and clear metrics for tracking progress toward them
To be credible, boards need a clear plan for whatever sustainability efforts the organization undertakes—and metrics to prove their results.
Companies that are specific about their goals and plans are much more believable than those that only share a goal. And setting metrics at the outset will let the board show performance to investors and stakeholders.
7. Structure the board to engage meaningfully on sustainability matters
While many boards consider creating a stand-alone sustainability committee – focusing attention as they do on compensation, nominations, and governance matters – the specific structure is less important than ensuring strategic and nuanced discussions around sustainability happen.
Achieving this will help connect sustainability to the rest of the board agenda. It will also encourage the wider business to pay attention.
8. Include sustainability in compensation models
Tying compensation to sustainability, either through broad goals or specific initiatives, and making that link public will prove the importance of sustainability. In practice, this means linking CEO and management compensation to ambitious sustainability targets. Doing so will ensure all organizational processes—such as recruitment, training and development, strategic planning, and performance management—embed sustainability.
9. Make a sustainability mindset a factor when hiring directors
When recruiting directors, don’t confuse sustainability expertise with a sustainability mindset. Simply recruiting a sustainability director who served as a chief sustainability officer will likely leave them isolated. Instead, look for great directors who believe business isn’t divorced from wider society and who can align all they do to sustainability.
10. Make a sustainability mindset a factor when hiring CEOs
It’s also critical to make sustainable leadership a requirement for executive hiring and succession. Without the CEO’s commitment, for example, sustainability won’t factor into the strategy, key metrics, or other essential corporate activities, and the business is unlikely to achieve ambitious goals.
