The results of the EY EMEIA Board Barometer 2022 indicate that boards recognise the need to focus on sustainability. More than 90% of the respondents thought the sustainability of their organisation’s business model was a relevant concern, while 86% emphasised the importance of long-term value creation and measurement. And 81% prioritised operational and strategic ESG integration.
How can boards lead from the front?
Boards will be required to support and provide oversight for their organisations around decarbonisation, reporting on key ESG metrics, transformation to manage associated ESG risk factors, actions toward a circular economy, etc. They need to see how these issues will impact the long-term value of their organisations.
Boards, however, will need to go further than simply overseeing sustainability-related risks. They will be responsible for ensuring that their organisations fully integrate sustainability into its strategy and business model. This means using sustainability to create value through accelerated innovation, improved access to capital, better employee and customer engagement, and an enhanced reputation in the market. Fully embedding sustainability into strategy may even require the business to totally transform its traditional operating model.
It is about understanding and appreciating everything outside the four walls of the organisation, and how the board must act to influence both itself and its entire value chain to decarbonise and become more sustainable. The board also needs to simultaneously chart a path for the organisation to mitigate the impacts of climate change on its business, and to adapt where necessary.
COP27 in Egypt brought it home that businesses and countries must go “all in” on keeping global temperatures below 1.5 degrees, lest we experience far greater disruption, destruction and losses due to climate change in the medium term.
Irish boards will need to review the suitability and feasibility of any goals set and challenge management as to how it plans to deliver on these targets. They will also need to ensure that ESG-related metrics are turned into measurable KPIs and integrated into management priorities and executive compensation frameworks.
Boards also have a role to play in ensuring robust practices and procedures are in place to facilitate both internal and external reporting, and that the reporting metrics employed are relevant to the strategy, stakeholders and the sector in which the organisation operates.
Boards may need to review their composition to enhance their own competencies. It may be necessary to bring in external insights to the boardroom to boost the understanding of ESG-related trends that may affect the organisation’s business, such as regulatory development, and further evolving stakeholder expectations.
Boards should also consider whether to delegate ESG responsibilities to a dedicated sustainability committee or the audit committee.
The responses to these will help the board garner momentum on sustainability discourses within the organisation. A good starting point for boards can be by building a symbiotic working relationship with Chief Sustainability Officers (CSOs). This relationship can be the foundation on which organisations can realise the benefits of ESG while mitigating the risks.
Summary
Irish boards have a pivotal role to play in sustainability-led value creation. The board’s direction can strengthen the link between sustainability and financial performance of organisations, thereby giving them a competitive edge. A board-led framework of ESG goals, KPIs and measurement metric can help the Irish organisations map out a risk-benefit analysis.
