The role of the board in driving sustainable business - and the impact on HR leaders

Heidrick & Struggles hosted a fascinating roundtable on how Board members can play a vital role in impacting their organisation's transition to a low carbon model, as well as addressing the risks and undercovering the commercial opportunities for their organisation as the world shifts to sustainable business models, ultimately addressing the unfolding climate crisis.

For HR leaders this will fundamentally impact their role in how they drive their talent strategies to attract, retain and develop vital climate/low carbon/environmental talent skills in their organisations in order to accelerate their low carbon transition.

For the take-aways from the event, please see the below points.

By?Alice Breeden?and?Kit Bingham

Developments in cyber technology, the need for business sustainability, the aftermath of the?pandemic, and the move to net-zero are all impacting the way that boards function. To explore one of these impacts, Heidrick & Struggles recently hosted a board practice and CEO event in London, where we invited senior leaders to address the pivotal role the board plays in driving the transition to sustainable business.?

Speakers included?Clare Harbord, Group Executive Director, Corporate Affairs, Drax Group;?Steve Morrison, Partner and COO, Bridges Fund Management;?Ron Soonieus, Senior Advisor at BCG and visiting professor at INSEAD; and?Ulrika Wising, SVO Energy Transition and executive committee member at Vallourec.

Sharing best practice and key learnings, the panel highlighted the need to understand the risks and opportunities involved in building a sustainable future. They also agreed that the board has a responsibility for ensuring that their business is viable now, in five years, and at a time – not too far distant – when sustainability will be essential to survival.

Four core components emerged from the discussion, outlining how boards can rise to the sustainability challenge.

?1. Courageous, engaged leadership

Courage underpins all of the actions required to create a sustainable business. The transition to net-zero and other environmental goals requires vision and brave leadership. With the tone set from the top, success on sustainability requires two champions – the Chair and the CEO. Where they lead, the rest will follow. A visionary, engaged CEO is where the sustainability transition begins.

Appointing a Chief Sustainability Officer who reports to the board can also help guide directors on the sustainability agenda. Alternatively, the Chief Growth Officer could take up the mission, linking sustainability to business success.

The board should not shy away from challenging the executive committee on sustainability to ensure that they are getting the right intelligence, in particular from the Chief Sustainability Officer and external experts. With robust information, it’s easier to make brave decisions.

?2. Openness to education

Lack of knowledge is, however, deterring boards from making strides on environmental and sustainability issues.?Research?by Heidrick & Struggles among board directors worldwide shows that 85% believe their own boards need to increase their knowledge of climate change, while 69% said climate change knowledge was not a formal requirement of joining the board. To counter this, all directors need to become informed about the relevant aspects of sustainability, such as energy transition, and how these relate to their business.

An education in sustainability doesn’t have to be overwhelming. The requirement isn’t for every director to be an expert – rather that they all have the right level of education so that as a unit, they can make informed sustainability-related decisions. This can start with small steps, as simple as an opening conversation with the Chief Sustainability Officer. Other steps could include digesting daily data on climate challenges via news feeds and expert reporting, or staying up to date on the latest developments in green hydrogen and carbon capture.

Directors should also be able to access deeper expertise. Advisors from NGOS and sustainability consultancies can be drafted in; or companies can appoint new board members who have been instrumental in a sustainable business transformation in previous positions.

?3. Reframe the opportunity

Boards need to stop viewing sustainability as risk and recognise it as a competitive advantage. Sustainability is a journey, and tough investment decisions will have to be made to reach the end goal. Companies are going to have to accept short-term pain to achieve long-term gain and be viable for the future.

Achieving sustainability requires going outside normal comfort zones, and could even mean shrinking today’s business to grow tomorrow’s. But too many organisations are adopting a delay and pray model, and failing to weigh the risk of doing nothing versus doing too much too soon, with?research by EY?showing that only 5% of the FTSE 100 have published credible net-zero plans.

Businesses should having these conversations with investors now. Fortunately, many investors are already realising the benefits of sustainable business, targeting climate solutions and green technology through conscientious and ESG investing with a view to long-term returns.

?4.?Metrics and measurement

Measurement is central to sustainability success. Data and metrics enable businesses to track and demonstrate progress, but this can only be achieved by first identifying meaningful metrics such as measuring impact for strategic value. It’s equally important to remember that sustainability issues are shifting sands, and metrics will have to be regularly reviewed to ensure continued relevance.

Similarly, it isn’t enough to talk generally about ESG targets. To be valuable, metrics have to be specific on issue such as climate change, waste management or energy use. Diversity and inclusion targets have already shown that the more precise the metrics, the greater the progress.

By defining the role their organisation plays in a changing world, boards can both identify opportunities and mitigate risk. To achieve this, they must determine the right investments to make today for longer-term survival. Directors have to lead the way in restructuring sustainable business models that are underpinned by robust measurement and reporting. And they must create a viable sustainability vision that will inspire others, both inside and beyond their companies.

Understandably, big questions remain; notably affordability. The answers are all rooted in whether or not the solution moves the issue towards being a business opportunity rather than a threat.

To explore how sustainability is being embedded at board level, see Heidrick’s report,?Changing the Climate in the Boardroom.