How to set and meet ESG goals
Sustainability Strategy Talk with Philippe Joubert
Conceptualising the nature of sustainability complicates the task of setting and updating ESG strategy. Philippe Joubert, who specialises in helping boards with these tasks, recommends talking to a range of stakeholders to help identify key externalities and to find answers. He discussed some of these ideas during the 11th December Sustainability Strategy Talk.
“Sustainability should not be kept in a corner, but should be at the centre of every business decision,” said Philippe, the founder/CEO of Earth on Board advisory in Governance . He called time of the idea that “the business of business is business,” economist Milton Freedman’s pithy denunciation of corporate social responsibility. “We have been using billions of years of nature works free of charge, often abusing natural and sometimes social capital in so doing,” Philippe said.
Strategy for the long term
He advocates putting the drive for shareholder value in this context. “Shareholders own shares, they don't own the company. It's a big difference,” he said. That said, he understands that investors must be respected and their interests recognised . “It's natural that people who have put their money at risk have the right to be rewarded and see the company develop. But what I am saying is you cannot only consider very short-term financial interest as the only objective as this doesn’t work for the long term interest of the company ,” Philippe said. The first board duty is to care about the company interest .
He says that there can be no excuses for not knowing about the new challenges generated by the sustainability questions like the consequences of climate change , particularly with most of the world’s leading economies having recently committed themselves to reaching carbon neutrality in a generation. All companies need a strategy that goes with this grain. In this context he believes the role of the board should come to the fore, to take the lead of the change and be less about registering the decisions made by management.
How to boost sustainability
"So how can we get more sustainability into the boardroom?” asked Tom Pfeiffer, the host of this interview and member of the ILA Sustainability Strategy for Boards committee. “A fundamental task is to know stakeholders and their expectations,” Philippe recommended, adding that it is important to keep this process simple to discover the essence of the question. As well as making this easier to communicate to stakeholders, it increases the chance of achieving returns on these goals.
He suggested a mapping exercise based on these discussions to better understand the impact the company is having on the environment and its social context. “There is no need to exaggerate by talking with dozens of stakeholders, but if you focus on five or six this should enable you to account for three or four externalities and cover 90% of the question ,” he said.
He also recommended informal internal audits of processes to check that good intentions on sustainability are being acted upon. For example, he likes to review board agendas from the last years to check the extent to which ESG questions are being addressed with sufficient time and depth.
Effort by all
Asked whether firms should appoint a Chief Sustainability Officer, Philippe believes companies must do more than this, and nor does he believe boards necessarily need to hire people with specific ESG skills. “You need everybody to be aware, and you shouldn't have necessarily an overly specific committee”. He suggests forming a committee with a role such as “strategy and sustainability” that puts sustainability at the centre of the strategical process and thinking . This committee would also need a formal link and set agenda with other committees to touch on questions related to environmental, physical and reputation risk and HR subjects like variable remuneration and profile recruitment and make sure sustainability criteria are part of their decisions also .
Yet there are no short cuts. “For the board, this means that they have to double, triple or quintuple the effort they were putting some years ago in defining the way forward,” Philippe said. But he is convinced this work is worth it. “Few of us came into business just to make money. Mostly we seek to create value with a purpose,” he said.
No company have been created only to make money . Making money is necessary to develop the business but the purpose in creating a company is to fulfill a need for the society and board of directors must be the guardian of this founding purpose .