Today, most of the world’s leading companies are keenly aware that environmental sustainability is critical to the bottom line. Among the different factors that businesses should consider, companies need to have the right board governance systems, so that formal board mandates, board expertise and executive compensation are all integrally linked with sustainability.
Yet while businesses recognize the advantages of integrating sustainability into board governance, it’s not always easy to do. In our Conservation and Financial Markets Initiative, we support work to help companies eliminate the risks that environmental degradation poses, and seize opportunities associated with improved sustainability. With related support, Ceres has released a new report, Systems Rule: How board governance can drive sustainability performance. Researchers analyzed the board governance systems and sustainability performance of 475 of the world’s largest publicly held companies listed on the Forbes Global 2000.
Among the findings:
- Many large companies state that their boards oversee sustainability; however their systems are largely rudimentary or piecemeal. Just 13 percent have both a formal board mandate for sustainability and disclose board-management discussions on sustainability; 17 percent have directors with expertise in sustainability, and 6 percent disclose connections between executive compensation and sustainability targets.
- Companies with the right board systems are well positioned for sustainability performance. A company that establishes a formal board mandate for sustainability issues at the board level is two times more likely to have stronger sustainability commitments. Similarly, a company whose board of directors has sustainability expertise is more than two and half more likely to have stronger sustainability commitments, and a company that links executive compensation to sustainability is two times more likely to have stronger sustainability commitments.
- The best performing companies have holistic systems for board governance, including formal mandates, expertise and incentives for sustainability.
Ultimately, the report affirms that companies with strong and effective systems for board sustainability will be best positioned for sustainability performance.
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