Boards are the last great sustainability frontier. They set the sustainability tone at the top, which then cascades throughout the company.
It is essential for boards of directors to be engaged in the sustainability agenda. They define the long-term view, anticipating and addressing risks from social and environmental impacts. Progressive boards recruit and incentivize leaders to build sustainability into the company’s business model and value chains. And now that the sustainability ROI has been proven, sustainability has become part of the board’s fiduciary responsibility.
For many years HP’s board has embraced sustainability as part of the company’s value proposition. Aida Alvarez, Director of HP Inc. and member of the company’s Nominating, Governance and Social Responsibility Committee, observes, “Sustainability is important to HP’s growth; it matters to the success of the company.” Ms. Alvarez and her board colleagues have more to say about the virtues of sustainability at her company in this short video clip.
There’s a significant risk that board leadership on sustainability will stall unless and until it is built into the board mandate. The corporate secretary has a key governance role here.
As an aid to corporate secretaries in this oversight role, there are now guidelines to provide ideas and inspiration for building sustainability into corporate governance.
The Corporate Secretary Guidelines to Enhance Board Sustainability Oversight (currently in draft form) highlight the following drivers of sustainability governance:
- Boards’ growing awareness of the materiality of the risks and opportunities arising from sustainability trends such as climate change, human rights, resource scarcity and rising income inequality and their impact on customer expectations, regulatory requirements and firm value;
- Active and engaged shareholders, particularly institutional investors, who increasingly believe that sustainability factors will have material long-term impacts on investment performance;
- Increasing international clarity on the definition and expectations of sustainability through the development of standards and norms;
- Fiduciary duty is being defined as the creation of long-term shareholder value and the need to respond to the interests and concerns of a broader range of stakeholders. There is a growing recognition that failure to address stakeholder concerns exposes companies to a range of risks with short and long-term consequences;
- Shareholder emphasis on the quality of corporate governance and transparency of corporate governance practices drives efforts to improve corporate sustainability governance along with other governance practices. Their expectation that Boards have governance practices which are effective, fit-for purpose and clearly communicated to stakeholders is resulting in more scrutiny of the Board’s composition, performance and oversight ability with greater focus on sustainability.
Check out this guide for ideas and inspiration on how to build sustainability into corporate governance and share with any corporate directors, corporate secretaries or governance professionals in your network. Governance Professionals of Canada is hosting a webinar on this topic in March, date TBD. Contact me if you would like more information as details are available.