Whether driven by intrinsic motivation or extrinsic drivers like client demands and legislation, sustainability is here to stay for companies. Non-executive directors can play a big role in accelerating the integration of sustainability into corporate strategy and beyond.
On October 12, 2023, the Advisory Board Circle convened over female leaders to discuss integrating sustainability into their non-executive roles. This paper builds on the insights shared at the event – by Change in Context’s Marjolein Baghuis and the engaged audience.
Broaden your insight for sustainability
Whether you are new in a non-executive role or have been there for some time, there are a few things to review before you engage with the executive board members on sustainability.
Check out the sustainability section of the website, as well as the sustainability strategy, action plans, governance, and reporting. Were these materials publicly available and easily accessible? Or was it hard work to find them? From these materials, does it feel like the company is intrinsically motivated, just reacting to what is minimally required, or somewhere in between?
What are the key topics in the sustainability strategy at other companies in the industry and value chain? An easy way to find out is to review the materiality analysis of competitors, clients, and suppliers, as well as industry reports. That will help you sense whether the industry is just starting on the sustainability journey, or is well ahead of other industries. You don’t have to become an expert, but it is useful to know what is going on around your company to ask better questions in the boardroom.
- “The chemical industry is currently quite CO2 intensive. Chemicals are at the start of the value chain for many materials and products. So there is opportunity and responsibility to reduce the CO2-intensity across the value chain.” An Lemaire
- “The healthcare sector has unique challenges, balancing longer-term environmental impacts with immediate patient needs. Even if senior management is not quite ready, nurses and other healthcare workers are intrinsically motivated to drive change.” Astrid Ventevogel
And do a bit of soul-searching as well. Why is this topic important to you – as a person, in your executive role, in your non-executive role? Knowing your own story will help you find entry points for discussion with others on the board.
Leverage boardroom topics for sustainability
Executive teams mostly operate in the here and now. The non-executive directors have a clear role to ensure sufficient focus on the company’s long-term perspective as well. If sustainability is not integrated well, companies may cause harm to society and themselves. Sustainability can play a key role in attracting and retaining talent, meeting customer expectations and legislative requirements, ensuring access to scarce resources, and boosting innovation and reputation.
- “To really anchor sustainability ambitions and targets, it has to be part of the business strategy.” Rudina de Lange
- “Companies that use sustainability as a guide for innovation, can set the standard in their industry.” Femke Brenninkmeijer
To attune the strategy to society, companies engage with key stakeholders. By providing insights from various perspectives and ensuring a wide variety of stakeholders are engaged, diverse non-executive boards can lay the foundation for multi-stakeholder collaboration. This also helps companies to better scope and understand risks and opportunities. And to think beyond climate change and waste management as key topics to include in their sustainability strategy, such as human rights in the supply chain, water, biodiversity, true pricing, and tax.
- “Tax is an important enabler for achieving sustainability targets and can help unlock value from sustainability.” Antigoni Gkarla
- “If we do not price our products correctly (with the true price including externalities), someone else is paying the price.” Denelise l’Ecluse
Sustainability has to be clearly embedded in corporate governance – right into the C-suite. NEDs can help to create space for a Chief Sustainability Officer or ensure the topic is otherwise well-established. The CEO is appointed by the NEDs – so they have a responsibility to include sustainability criteria in succession planning. Additionally, in a tight labor market, a clear sustainability ambition and performance can help attract and retain talent.
- “Sustainability is also deeply integrated into the Dutch corporate governance code for listed companies.” Sofie van Londen
- “A solid sustainability track record can be a differentiator to attract new people. We need those people to raise the bar – and to achieve the sustainability ambitions.” Lorene Zeegers
To underpin the governance and recruitment for sustainability, the remuneration scheme should also integrate sustainability performance. But it cannot just be captured in targets and bonuses – it needs to be embedded in the corporate culture and change programs as well. In many companies, senior leadership and new recruits may be keen to integrate sustainability, but change can only happen when middle management is engaged as well. If they stick to the “old ways”, this can block the effective implementation of the sustainability strategy. Therefore, sustainability must be integrated into corporate strategy and the financial budget.
- “Sustainability needs to be included in remuneration across the company, not just for the CEO.” Marie Cécile Dekker.
- “Assessment tools like Ecovadis can really help to engage middle management.”
Set the agenda for sustainability
With many reasons to get started or raise the bar on sustainability, you’d hope that there is sufficient (intrinsic) motivation in all companies. If that’s not yet the case, there are other ways for NEDs to progress sustainability in the boardroom.
The EU Corporate Sustainability Reporting Directive (CSRD) will require around 50,000 European companies to include sustainability strategy, targets, and performance in the annual report. As the CSRD places a lot of emphasis on the value chain, many smaller companies will be asked by their clients to report on select topics like CO2 emissions. Large companies will have to report according to the CSRD as of the 2024 financial year, others have one or two additional years to prepare.
Whether the approach to the CSRD is more compliance-based or more strategic is a good topic for discussion in the boardroom. Also, the CSRD has some specific reporting requirements that make for excellent boardroom agenda items, such as:
- Establishing the key topics to focus on through a double materiality analysis. This assesses the financial impact on the company and the societal impact of the company across sustainability topics.
- Setting and publishing targets for each identified topic
- Explaining the value creation model and the value chain
- Mandatory third-party assurance
- “Even if a company does not need to report, as a NED you can discuss efficiency in the reporting process by asking questions like: What kind of third-party requests for sustainability data are we receiving? How are you handling them? One-by-one or in a more structural manner?” Rudina de Lange
- “There is no such thing as first time right when it comes to the new reporting standards. So build in time to learn and adjust.” Manyana Schmitz
Other soft and hard law initiatives also make for good boardroom discussions around sustainability, such as the upcoming EU Corporate Sustainability Due Diligence Directive (CSDDD), the recently updated Dutch corporate governance code, and the also recently updated OECD MNE Guidelines, to which the Dutch government explicitly expects all multinational enterprises to adhere.
Eager to engage for sustainability
Driving sustainability in a non-executive role proved to be an excellent topic for the Advisory Board Circle event. Over drinks and bites, the participants continued the conversation and connected – for positive change!
A big thank you to Saskia Bomas for hosting the event at Kyndryl, and to Liesbeth Rigter and Ellen Holmen for working with Saskia to stage the event.
This post was written by Marjolein Baghuis for the Change in Context blog. It was also posted as a series on LinkedIn. To read interviews with other interesting people, book reviews, and other posts about change, leadership, and sustainability, please subscribe.