The board’s role in shaping a sustainable organization
March 04, 2022
Board members are guardians of corporate purpose – the reason a company exists. The role of the board has become more complex in recent years as demands for companies to acknowledge their social responsibility beyond increasing profits has grown to encompass a wider economic, social, and environmental impacts.
Responding to rising stakeholder demands for organizations to operate “sustainably” has added a fresh challenge to board oversight: How can companies balance doing well for their shareholders and doing good for their employees, customers, and other stakeholders? At the extreme, leaders might consider this a “zero-sum” game believing that purpose and profit are fundamentally at odds. New evidence shows the link between sustainability and financial performance continues to strengthen, as sustainability becomes a powerful source of competitive advantage. To unlock this advantage, leadership teams need to build stronger stakeholder relationships at the core of their organizations.
A recent Accenture report, Shaping the Sustainable Organization, finds that stakeholder concerns are too often an afterthought: “bolted on” to existing business practices, as opposed to being “built-in,” fully embedded, measured and incentivized. For example, 68% of senior executives believe they create empowering workplace environments—but just 36% of employees agreei. These ‘consensus gaps’ between leadership and stakeholders can weaken the link between sustainability and profitability. Indeed, our analysis shows when executives and employees are strongly aligned on sustainability performance, companies are growing 13% faster than competitors, on average.
Prioritization is at the heart of the challenge. Sustainability is recognized as a business imperative for 73% of leadership teams. Other influential stakeholders – from 71% of consumers to 64% of local communities – are increasing on their organizations’ sustainability-related activities over the next three years.
Yet sustainability still remains a second-tier priority: when forced to choose, our research suggests executives continue to focus on more traditional concerns [see chart] rather than prioritizing sustainability. Fully, 58% of leadership believe operating more sustainably involves a trade-off with growth.
This results in a domino effect – the lack of prioritization leads to a lack of integration, as only 25% of organizations have implemented sustainability goals systematically across their entire organization. The lack of integration leads to 43% of companies failing to match ESG rhetoric with resultsii and less than half of stakeholders surveyed believe leadership teams “walk the talk” on sustainability.
The data is clear: executive teams who want to be competitive in the marketplace need to develop strong stakeholder relationships and cultivate a sense of shared ownership to drive change within their organizations. How can the board and executive team work together to recalibrate business strategy and governance models of yesterday to urgently address today’s evolving needs?
The key is to build strong “Sustainability DNA” – to help strengthen the organization’s management practices such as Equal Workplace Opportunities, Executive Compensation and Labor Standards – that embeds stakeholder-centricity at the core of the culture of the organization.
Importantly, Sustainability DNA can help companies align their twin objectives of doing well for the shareholders and doing good for all stakeholders. The analysis reveals that those companies with the strongest Sustainability DNA outperform their peers by 21% in terms of both profitability, and positive environmental and societal impact.
AB InBev, the world’s largest brewer, is a great example of an organization with a strong Sustainability DNA. Having set a bold ambition to “close the loop” throughout its value chain, the company deepened engagement with suppliers and invested heavily in environmental innovation. The results are impressive: a dramatic decrease in waste and a more resilient, efficient and inclusive supply chain.
Three simple steps will allow executive teams to embrace the fundamental change that becoming a truly sustainable business entails - we recommend CEOs and boards work together to embark on a continuous, cycle that places stakeholders at the core:
Leveraging these steps will provide the foundation for boards, CEOs and executive teams to strengthen their Sustainability DNA.
Here are ten questions board members can use to start the dialogue within their organization: