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Sustainability: the most-needed knowledge for boards

Author: ICAEW Insights

Published: 16 Apr 2024

Every NED – not just ‘the ESG person’ – must have a basic grasp of sustainability issues for a board to function effectively, says Jeannette Lichner.

An effective, well-run board is a learning board. If it’s not learning, then it’s not well run and its collective performance will deteriorate over time.

That’s the frank verdict of seasoned non-executive director (NED) Jeannette Lichner. Among other roles, Lichner serves as Senior Associate and Online Course Tutor at the Cambridge Institute for Sustainability Leadership (CISL), and as a Senior Advisor to The Sustainability Board. In her assessment, keeping up to date on all the topics relevant to NEDs – including sustainability – takes “a huge amount of effort” outside the boardroom.

“The days of just reading the board papers, and then turning up to ask a few questions and say a few words are long gone,” she says. “That’s nowhere near sufficient for effective boards, or NEDs – who must be actively engaged and know what’s happening inside and outside the business.”

Systems and controls

What boards most require in NEDs, Lichner stresses, are people who have a breadth of understanding in a range of fields, and a depth of understanding in at least one. As such, it is up to every board member to be knowledgeable about sustainability and environmental, social and governance (ESG) matters. “It’s not okay to just rely on ‘the ESG person’, in the way boards sometimes point to the risk person for matters in that area,” she says.

Lichner notes that systems and controls are as important in ESG as they are in finance and risk. As such, accountants are particularly well suited to bring sustainability know-how and discipline to boards.

Plus, as well as having experience with managing external relationships – a core concern amid the drive for ethical supply chains – accountants are schooled in the art of committee oversight: a key skill. “People don’t focus enough on how the chair of an audit committee is responsible for managing not just the head of internal audit, but external auditors, too,” Lichner says. “That’s a really hard job.”

Focus on purpose

Lichner points out that the type of sustainability expertise an accountant would need to have when seeking a NED position will vary, depending on the nature of the business. But certain subject areas and resources will form a fairly universal knowledge base.

First of all, every board member must focus on their organisation’s purpose, learning from others who are successful, she says. “Challenge yourself to put on many hats and think about how the company should make its purpose resonate with people in different departments. You must also read about climate change. At a bare minimum, whatever sector you’re in, you should be working on getting your business to net zero. But if you’re in an industry where the ‘E’ [of ESG] really matters, you must read deeply into that subject.”

However, that focus should not come at the expense of ‘S’-related factors. Lichner notes that an organisation’s biggest component is its people. That means not just its employees, but its external stakeholders and the community it serves. “So, you need to look at what’s going on in the world of careers right now. You need to find out about what young people are looking for. COVID-19 and working from home impacted us all, and a war for talent is raging. You must have a grasp of your own company’s people strategy, but it’s really important to keep abreast of what everyone else is doing, too.”

Know the code

To support those knowledge areas, Lichner notes, it is vital for anyone seeking a NED role to familiarise themselves thoroughly with the 2024 Corporate Governance Code and its accompanying guidance from the Financial Reporting Council (FRC)

“The FRC has had its challenges, just like the rest of us,” she says. “These are two very useful documents for assessing how well your board is running. You can easily use them to evaluate your board’s performance, and that of individual NEDs. If a board is effective, it can deal with artificial intelligence. It can deal with ESG. It can deal with a range of hot-button issues, both individually and collectively.”

Drive corporate longevity

In Lichner’s view, boards that can master sustainability ethics will have what it takes to support corporate longevity. “The board must drive the setting of a sustainable business and its purpose,” she says. “Why do you have the right to exist? Younger workers think that if a company is doing well, it’s going to be around forever. But that’s not the case. IBM almost disappeared a few decades ago. Now, the average shelf life of a company is much shorter than it was at the beginning of my career.”

Boards must also encourage the senior team to take a realistic approach to employee freedoms, Lichner says. She points out that 50% of people in the UK must go to a place of work to do their jobs. “People are asking: even if you can technically work from home for up to 100% of the time, is that good for sustainable organisations? And leaders are increasingly coming round to the view that the answer is no. We need to build cohesion here.”

Similarly, boards must do their part in urging staff to take the reins of their learning and development. “Waiting for an employer to draft a training programme for you is nonsense,” she says. “The freedom to work from home for some of the time must be balanced with the responsibility to take charge of your own learning. And there are plenty of resources in, for example, the world of massive open online courses (MOOCs) that companies can signpost and individuals can seek out themselves.”

Keep learning

What goes for employees also applies to budding board members.

Lichner says that her go-to resource for MOOCs on sustainability themes is Coursera, where relevant search terms can return copious options from all over the world. In addition, she subscribes to Harvard Business Review’s Daily Alert – a five-point ‘best of’ that frequently links to pieces exploring aspects of sustainability – plus updates from consultancy McKinsey: one of the biggest sharers of free research.

“Knowledge won’t be handed to you on a silver platter,” she notes. “Spend an hour a week putting ‘ESG’ or ‘sustainability’ into Google and reading whatever news comes up. Visit headhunter websites, which always have information about what it means to be a NED, how to prepare for it and how to deal with the interview. And read as much as you can about leadership. People on the brink of board membership sometimes think they know all they need to know. But the board requires a whole new level of leading, listening and facilitation skills, compared to what we’ve picked up from being execs.”

Lichner also advises accountants to read material that may strike them as unusual or ‘fringe’. “I wouldn’t call myself an eco-warrior,” she says. “But I get the importance of that spirit. And that makes me read stuff I wouldn’t normally read.”

Further resources

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Corporate governance codes and reports

Access the key reports and codes aimed at raising standards in corporate governance in the UK published in the wake of the BCCI and Maxwell cases.

See more
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Principles of Corporate Governance

Guidance on the key principles of corporate governance and ICAEW thought leadership and discussion on development of corporate governance.

See more
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