Fundamentals of sustainability at board level

Environmental, social and governance sustainability has become central to business strategy. It impacts brand image, staff hiring and retention effectiveness, and helps with capital raising. ILA’s three-part Sustainability Programme helps directors understand everything from strategy formation to policy implementation.

It matters to your company that current and future clients and employees feel good about dealing with your company. This relates to the environmental and social stance, as well as governance policies; be it promoting positive outcomes or just seeking to reduce the bad. Sound environmental practices reduce waste and thus cost, and give greater understanding of exposure to climate risk. Furthermore increasing numbers of investors are seeking to support sustainable businesses, so these policies influence access to capital. 

Balancing the imperatives

ILA’s three part Sustainability Programme began with the “Introduction to Sustainability” module on 11th December, held at The Office Charlotte in Luxembourg City. This explored the context to illuminate the concept and give a structure for policy formation. The next module “Tools and Frameworks” to be held on 25th February 2020 will examine regulations, standards, labels and tools. This will help directors create strategies using impact measurement and management. Finally, in Q2 2020 “Implementation and Communication” will discuss change and communication management using practical examples. All three sessions are led by Hedda Pahlson-Moller of the consultancy TIIME.

We all have different ideas of the right balance between economic, social and environmental sustainability. “The closest thing the world has to a strategy are the UN’s sustainable development goals,” said Hedda. These 17 high level goals target climate action, gender equality, sustainable economic growth, the eradication of poverty and hunger, quality health and education services and more. “These goals are a framework for identifying priorities and targets; a lens through which to view business challenges,” she said. Hedda advised against being over ambitious, saying that organisations should pick the goals that are right for their circumstances.

Providing a lens

When turning to action, there is a spectrum of potential activity–ideas which are quite well defined in the world of investment. Hedda sees three types of “capital investing”: mainstream (where financial returns are the sole concern), socially responsible (involving the screening-out of unethical companies); and sustainable (featuring positive choices reflecting environmental, social and governance (ESG) considerations). This contrasts with “impact investing” which actively seeks to generate positive ESG outcomes. The emphasis on the need for financial returns can vary. Finally we have philanthropy, which ranges from venture philanthropy which funds social enterprises, through to more straightforward charitable giving. 

These notions do not map onto every business, but they give a framework through which to understand the challenges. Yet there are no clear ways forward and each business has to find the strategy that works for them. An excessively quick move to embrace ESG ideas could endanger the business model, while was might appear to be half hearted action could be counterproductive if it generates cynicism. This is a fundamentally subjective area, as notions of ESG are in the eye of the beholder. For example, Hedda pointed to inconsistencies between rating agencies in this field: “Individual company ratings are not comparable across agencies due to a lack of uniformity of rating scales, criteria,and objectives.”

Ask the right questions

Hence the importance of boards when formulating strategy. Directors need to ask questions to help executives gain clarity. “Do we know our stakeholders?” “How are we integrating ESG into strategy?” “How are we addressing ESG considerations?” “How should we report our ESG action?” All these questions need to be probed. Not everyone will be satisfied by every answer, but coherence is required if customers, investors and staff are to be reassured that your organisation has more than just good intentions. 

For more information about the “The Rise of Sustainability” module, download the flyer here.

Registrations are already open for the second session, click here to discover the agenda.