Sustainability as a Strategic Concern for Boards and C-suites
Whether the topic is environmental impact or labor and human rights overseas, the corporate conversation about sustainability issues isnt new. But what is changing is that senior leadership is thinking more strategically about sustainability and ears in the C-suite are starting to perk up, according to a new report from The Conference Board.
Sustainability has evolved from a fringe business issue to a major strategic concern, says Matteo Tonello, managing director of corporate leadership at the consultancy.
The latest edition of Sustainability in the Boardroom examines just whos responsible for spearheading these discussions among senior leadership. The study covers 157 companies in the manufacturing sector, 76 financial services companies, and 126 non-financial services companies to update The Conference Boards previous analysis from 2010.
Companies are still trying to find the right approach to incorporating sustainability into their business strategy. But, Tonello says, these findings show an interesting emerging trend towards an oversight structure that involves each and all directors, and the institution of a dedicated C-suite officer with execution responsibilities.
In an edited conversation below, Tonello discusses new trends, new directions, and new sustainability topics.
CorpCounsel.com: Have you noticed any significant changes or patterns since the 2010 "Sustainability in the Boardroom" report?
Matteo Tonello: A notable development regards the delegation of responsibility in this area and, specifically, the choice made by a growing number of boards and CEOs that sustainability oversight should remain a duty of the full board (given its inherent relation to business strategy), while the implementation of a sustainability program merits the attention of a dedicated C-suite officer. In 2010, only one company out of 10 had a chief sustainability officer, while 21.6 percent of boards had decided to try assigning the subject to a newly established board committee.
According to our new survey, the number of companies with a CSO has grown to as many as 34.2 percent in the non-financial sector and 33.8 percent in the financial sector (it is somewhat lower in the manufacturing sector22.2 percentbut still twice as high as the 2010 figure).
On the other hand, the percentage of boards with a standing committee dedicated to sustainability has decreased since 2010, presumably in recognition of the difficulty of separating a discussion of sustainability from the discussion of business strategy that takes place at the full-board level. (Note that the 2010 survey was based on a much smaller sample, which did not allow us to conduct segmentation analyses by sector.)
CC: Should boards be paying more attention to sustainability issues?
MT: I think that boards should continue to pay more attention to the sustainability aspects of business strategy. The notion of sustainability that The Conference Board is trying to disseminate among its members is that of a long-term business strategy based on the assessment and cultivation of critical stakeholder relationships. Depending on the specific circumstances facing an organization, stakeholders such as employees, suppliers, customers, and the local communities where the company operates may be critical to achieving sustainable shareholder value growth. A comprehensive sustainability program is the result of the assessment of, and investment in, those key stakeholder relations.
CC: Why is the use of metrics in this area important? Should companies be making better use of sustainability metrics?
MT: They are very important at the execution level. Many companies are still designing their sustainability program, and peer comparisons offer an important benchmark and starting point. Of course, no decisions are made based on quantitative information only, and any data benchmarking should be complemented with an assessment of the materiality of individual metrics.
Two companies of the same size and in the same business may reach different conclusions regarding the materiality of greenhouse gas (GHG) emission metrics, for example. Think of a company that has received a shareholder proposal regarding certain environmental concerns or a company that was sanctioned with a large environmental fine: that company may choose to place the GHG emission metric in the center of its sustainability program given that it is critical to restoring the company's reputational standing. A competitor may reach a completely different conclusion given its different circumstances.
Metrics are equally important at the oversight level, since they are one of the tools that can be used by the CEO and directors to assess performance by the executive put in charge of the implementation of the sustainability program.
CC: What's your view on the findings about political contribution oversight? The report indicates that companies should be monitoring political donations given the risks attacheddo you think they are doing enough?
MT: While sustainability is not a new area, this subset of issues is fairly new in the governance and sustainability debate. According to our survey, most companies (as many as nine out of 10 in the manufacturing sector, for example) do not have a policy regulating director/executive conduct in this area. In December 2012, the SEC said it is considering mandating disclosure of these corporate contributions and that proposed rules could be ready in the spring. The last couple of years have seen a surge of shareholder proposals on corporate political spending and lobbying activities. However, so far their average support level has remained low. This topic could become one of the highlights of the 2013 proxy season.