The Sustainable Development Goals and the role of corporate boards
School-children are calling for action, customers demand environmental-friendly products, institutional investors move towards long term investment and regulators regulate. But, what can we expect from the business society? How can companies contribute, and how can and should corporate directors contribute to achieving the UN Global Compact Sustainable Development Goals?
Blog post by: Turid Elisabeth Solvang, Founder & CEO FutureBoards, Former Chair of European Confederation of Directors Associations
The UN Global Compact Sustainable Development Goals (SDGs) are at the heart of “Agenda 2030” – a plan adopted by all 193 UN Member States, for achieving a better future for all — aiming to end extreme poverty, fight inequality and injustice, and protect our planet. Business play a crucial part in achieving the ambitious goals.
The Norwegian government has decided that the UN`s Sustainable Development Goals (SDGs) is the framework through which national, regional and global challenges are to be addressed. Furthermore, The UN Secretary General has appointed Norway’s Prime Minister Erna Solberg to co-lead the UN Advocates Group for Sustainable Development Goals. This places Norwegian companies in a unique position to take on a leading role in incorporating the SDGs into the corporate world. Yet, if this springboard is to be taken advantage of, sustainability needs to move higher up on the boards’ agendas.
Institutional investors in the driver’s seat
Meanwhile, the push from investors are increasing. Larry Fink, CEO of BlackRock – the world’s largest institutional investor – is clearly on a mission to change the mind-set and behaviour of corporate leaders. In the 2019-version of his annual letter to the CEOs of BlackRock’s investee companies he stresses that “Purpose is not the sole pursuit of profits but the animating force for achieving them. Profits are in no way inconsistent with purpose – in fact, profits and purpose are inextricably linked.”
However, CEO’s are appointed – and dismissed – by the companies’ board of directors, thus obviously depend on their boards’ support to develop and implement a strategy that enables and secures long term sustainable value creation.
The state of play in company board rooms should therefore be of high interest to all concerned about protecting our planet for our future generations.
State of play in European Board rooms
A recent survey among European Board Directors, conducted by BoardAgenda, Mazars and INSEAD found that “…While the risks and opportunities appear to be understood, half could not say that their sustainability intentions were delivered by effective business policies. A quarter of respondents could only partially agree that their policies served sustainability, while a worrying 15% indicated that their policies may not be up to the mark”.
Anthony Carey, Head of Board practice in the UK, Mazars concludes that: “A gap seems to exist between the extent to which boards recognize that sustainability is a critical business issue, and their effectiveness in measuring and managing it.”
The findings are encouraging and worrying at the same time. Encouraging, because sustainability seems to be “top of mind” in European board-rooms. Worrying, because there seems to be a disconnect between what board directors THINK they are doing, and reality.
At the same time, a global trend is emerging; that board directors – regardless of country borders national regulations or corporate governance models– are seeking a more active involvement in company’s strategy development process.
Working hard to Close the gap
The Sustainable Development Goals provides a framework and a tool to analyze business risks and opportunities for long term value creation. Raising awareness and developing knowledge among board directors is a good starting point. However, a new dimension must be added, which is to scrutinize how some companies make use of the SDGs, to avoid cherry-picking and shoe-horning. It is crucial that the SDGs are an integral part of the business model and the overall strategy, not just a “nice to have” add-on to the corporate activities.
Thus, the following steps are critical for every responsible corporate board that plans to survive in the 21st century:
- Understanding the importance of the SDGs, and how they should impact the boards role, composition and work processes
- Implementing the SDGs as a fundamental and fully integrated part of the strategy Development
- Reporting in an integrated and understandable way
Even more than the right skill sets, we must ask whether our future corporate leaders constitute the mind-sets required to secure long term value creation, not only for the companies they serve, but for society at large.
LES OGSÅ: Paradigm shifts in a Corporate World
Impact on future leadership
So, how will these new challenges affect corporate leadership? Who will be our future leaders and to what will the contribute? Which experience, competence and qualities will be needed? These are the fundamental question that investors are asking now.
Key questions for the board to ask themselves:
- What is the board-level understanding of sustainability?
- What is the board’s attitude towards sustainability? Is it part of market positioning, a means in itself or part of the organisation’s wider purpose?
- What weight is given to sustainability compared with other corporate issues such as financial reporting, risk management, productivity and cultural change?
- Where does responsibility for sustainability lie at board level?
- How is oversight of sustainability managed?
- How is sustainability integrated into wider risk-management processes?
- How is the organisation’s sustainability agenda communicated to stakeholders?
- Is sustainability considered as part of any investment decision?
- Where are the greatest sustainability risks and opportunities?
- Does sustainability form part of a recruitment, retention and reward strategy?
Source : Leadership in Corporate Sustainability – European Report 2018, The Corporate Governance Centre.
FutureBoards is a project-driven company and a global network of corporate governance experts and practitioners. We are committed to building better boards that supports sustainable value creation. Based in Norway and anchored in Nordic corporate governance, we collect and share research, thoughts and ideas from the perspectives of different stakeholders; investors, boards of directors, management, academics, politicians and regulators. FutureBoards have been cooperating with Admincontrol throughout the years.