How Can Directors Improve Corporate Sustainability?
October 14, 2021
By Ryan Walsh
Due to ever-changing perspectives around the globe, sustainability is becoming more essential for companies. It is increasingly more important for businesses to understand and adopt sustainable business practices not only for long-term profitability, but also to meet investor demands. Investors are more focused on environmental, social, and governance (“ESG”) initiatives than ever before. Despite this emerging focus, there has been a reluctance from companies’ boards of directors to catch the wave of sustainability.
The boards of directors’ roles in a company are to supervise how a corporation is managed through its conduct and operations. The board’s oversight over how a corporation handles its ESG process is known as corporate social responsibility (“CSR”). This oversight often falls short of ESG-related emphasis, as boards work to balance multiple risks, considering both short-and long-term goals and initiatives. However, there are growing indications that show that sustainability factors related to CSR and ESG positively affect the financial returns and find long-term value for investors and other stakeholders.
Undeniably, a company will realize significant advantages in adopting corporate sustainability processes that will help support its profitability in the long run. To provide long-term profit to key stakeholders, directors must work to develop a targeted, balanced, and comprehensive action plan to improve corporate sustainability. The board of directors should consider ways in which they can improve upon corporate sustainability to achieve this long-term viability. There are various methods that can be taken by the board to achieve this. Boards can take a phased approach which will act as a roadmap for the directors in their development of CSR and ESG strategies. The board can perform an assessment and analysis of its current practices and policies which will help determine if there are any gaps in the process and will equip the board with the tools to ask the right questions of management of the corporation. The board could observe peers and competitors to learn what others who have had success are doing in their implementation of CSR governance – or find out about mistakes to avoid.
There are also several recommended actions that boards should follow with regards to ESG and sustainability:
- Work with management to create a strategic plan for sustainability and ESG topics.
- Put in place a committee at the company that will focus on formulating a framework for sustainable business practices and processes. This will give management an opportunity to identify and assess any areas needing improvement.
- Create a system to track and measure a company’s ESG performance against the established framework in place.
- Have proper tone at the top in the communication of ESG and corporate sustainability policy. It is important for employees to understand and advise on the impact of ESG in their everyday work.
- Take measures to give employees the skills needed for ESG best practices through proper training.
- Have a well-defined and monitored marketing strategy when it comes to ESG. Boards need to assess whether the public information relating to ESG is truthful and accurate as to what is being done at the company.
Sustainability is entrenched within the foundation of ESG strategy. The trend of corporations wanting to focus and expand on their ESG perspective rather than strictly their financial profits is expected to continue indefinitely. As such, corporate sustainability is and should continue to be a focal point for company directors’ efforts. Directors are ultimately responsible for the strategic planning of corporations so they must play a key role in this important focal area. The strategies and recommendations described above will help the directors improve upon corporate sustainability in their businesses and in turn, meet investor’s expectations.