New Report Highlights Leading Corporate Practices For Sustainability-Competent Boards

As the devastating impacts related to Hurricane Irma continue to unfold, mitigating the disruptive forces stemming from environmental and social issues is the new norm for companies – and now even more for their corporate boards. A new report released by Ceres argues that corporate boards must keep these and other sustainability impacts at the forefront of the decision-making process in order to meet their fiduciary responsibilities to the corporations.

The report, titled, “Lead From the Top: Building Sustainability Competence on Corporate Boards,” notes that boards have a legal responsibility to act when environmental and social issues pose material risks on business models and financial performance. Factoring in material risks in decision-making is key for corporations to achieve strong long-term financial performance goals and increase their competitive advantage.

“Sustainability should be a primary matter for all board members, not just those with environmental or energy expertise and backgrounds,” Carol Browner, former EPA administrator and board member at Bunge, writes in the forward of the report. “Expanding board expertise on sustainability should be part of every company’s board strategy. Understanding the material risks and opportunities for the company is inherent in a director’s responsibility to ensuring long-term value creation and resilience.”

The report identifies the key characteristics that make up sustainability-competent boards and highlights the leading practices corporate directors can take to ensure their boards are competent to make thoughtful decisions on climate change, water scarcity and pollution, and other issues.

A sustainability-competent board has the following characteristics:

  • Integrates knowledge of material sustainability issues into the board nominating process to recruit directors that ask the right questions
  • Educates directors on material sustainability issues to allow for thoughtful deliberation and strategic decision-making at the board level
  • Engages with external stakeholders and experts on relevant sustainability issues

Key practices corporate directors should follow to ensure boards are sustainability-competent include:

  • Incorporate material sustainability issues into qualifications for potential board candidates
  • Find directors that can make the connections between environmental and social issues and the business context
  • Recruit candidates representing a diversity of backgrounds and skills to improve decision making
  • Integrate new directors with sustainability competence into current board deliberations, especially on strategy and risk
  • Require regular education on material sustainability issues for the whole board
  • Finding regular opportunities for boards to engage stakeholders on environmental and social issues
  • Incorporating material sustainability issues into board-investor dialogues

Ceres developed this report leveraging existing research and conducting in-depth interviews with over three dozen experts in this space, including corporate directors, investors, senior company leaders and governance experts. It builds on a 2015 Ceres report, “View from the Top: How Corporate Boards Can Engage on Sustainability Performance,” which detailed a two-pronged approach for integrating sustainability into decision-making via board governance systems and board actions.

“Corporate boards need to be qualified and prepared to provide robust and effective oversight on sustainability issues,” said Veena Ramani, director of the Capital Market Systems program and author of both Ceres reports. “We hope this new report will serve as a practical guide on how to factor stronger environmental and social practices into decisions on corporate strategy and risk.”

The report also comes as more and more shareholders and investors are increasingly pushing for sustainability-competent corporate boards, and follows a decision earlier this year by oil and gas giant ExxonMobil to appoint a leading climate scientist to its board.

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