Many board chairs have recently said “We need someone who understands sustainability.” This increased focus on adding sustainability competence comes not a moment too soon. Our study from earlier this year found that among directors who were concerned about their board’s ability to monitor sustainability threats and opportunities, the biggest issue was lack of relevant skills among board members. But sustainability encompasses a massive range of topics, so someone who is an expert in climate is unlikely to be an expert in green technology or waste management. This makes the “simple” task of adding a director with a sustainability background much more complicated than it initially sounds. How can boards determine the sustainability competencies and qualities they need in a board member?
What Sustainability Means for Your Board
The first step is to define what your board means by the term “sustainability.” Your industry, organizational structure, and company type will offer some input, and even more important your purpose, social impact goals, and employee engagement will give additional direction. We also recommend following the Sustainability Accounting Standard Board’s (SASB) framework in order to identify specific areas where a board director may add value. The framework breaks sustainability down into five core areas: Environment (ecological impact, energy management, water, waste and hazmat management); Human Capital (Labor practices, employee engagement, diversity equity and inclusion); Social Capital (human relations, customer protections, customer welfare); Business Model and Innovation (business model strategy and resilience, physical impacts of climate change, supply chain management); and Governance (competitive behavior, business purposes and ethics and risk management).
After we help boards determine what areas of expertise they need, we take it a step further, usually looking for four main competencies. A board member who:
- Understands sustainability risks and opportunities facing the company’s industry
- Comprehends the basic scientific arguments of climate change and the impacts of ESG regulation on the business
- Has a broad overview of the general sustainability agenda and the needed stakeholder engagement to drive change
- Appreciates the urgency and is willing to challenge the status quo to ensure sustainable prosperity of the company
Getting the Right Blend
While the sustainability leader who is a good match for each board will vary by the company’s needs, there are five archetypes of leaders to consider:
- Leaders of Current Sustainability Initiatives or Organizations: These individuals are likely able to illustrate what leading practices look like in sustainability across a variety of industries and organizations. For example, executives at PRI, the UN Global Compact, or World Business Council for Sustainable Development, among others.
- Policymakers or Regulators: Senior leaders in the policy and regulatory realm who have strong experience, interest or exposure to sustainability. These individuals are likely to bring a deep understanding of global systems and frameworks. Examples of these leaders include ESG standard setters, regulators and central banks.
- Global Thought Leaders and Academics: These are well-known, visible individuals who have significantly advanced the understanding and thinking around sustainability. They have the ability to bring an outside perspective into the boardroom and initiate high-level discussions. These leaders could include economists, climate scientists and transformation-focused individuals.
- Leaders with Relevant Experience: These are experienced executives with operational experience. They will bring practical change management and have real world experience in the trade-offs of decision-making. These leaders may be transformative CEOs, Chief Sustainability Officers, part of the C-suite in a sustainable business or a consultant steeped in sustainability.
- Board Members with ESG Experience: They are likely to bring governance, risk and reputational best practices to the board. Examples could be a chair or member of a sustainability committee, or a member of a board that is ESG-centric.
One important thing all boards must keep in mind as they seek to add sustainability expertise is that they shouldn’t fall into the trap of appointing a director who can only contribute on topics related to ESG. Ideally, they would also bring broader experience and thinking, including relevant industry or functional expertise, to the table as well.
Embedding Sustainability at the Board Level
As stakeholder expectations of companies’ sustainability efforts have heightened, boards need to equip themselves with the necessary knowledge and capabilities to oversee this critical area. Much like there was a push to either add directors with technology and cybersecurity expertise to boards (or educate sitting directors), sustainability experience is now as important. It not only has a major impact on the business, but it touches its employees and customers’ daily lives, and boards need to ensure that sustainability is not just a part of the agenda but part of the board’s core activities.
To do that, boards must challenge themselves on multiple fronts. Key questions to ask include:
- Do we have the deep commitment required to act as stewards of sustainability?
- Do we have the right mindset and mix of people on the board? Do we have sufficient ESG expertise, and if not, how do we address this?
- Do we have a clear understanding of the full scope of ESG as it relates to our company?
This will also take courage. Directors are asked to oversee companies operating in environments where people are more connected and more vocal on sustainability issues than ever before. Not every decision a company makes will be the right one, but the leadership team and board must have the conviction to keep trying to get it right while being transparent about where they are in their journeys.
Learn more about how the boards of the largest 100 companies globally are tackling sustainability in our report, “Boards: Stepping Up as Stewards of Sustainability.”