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Corporate governance: do you need a sustainability officer?

Author: ICAEW Insights

Published: 25 Jun 2024

Boards must do more to embed sustainability into their governance structure, and to scrutinise their organisation’s activities through a sustainability lens.

The question of who does – and should – own sustainability at board level dogs the most future-thinking companies. The Chief Sustainability Officer is rarely on the board and sustainability, in its simplest form, means merely that the company is ‘future fit’.

A recent EY report urges a more ambitious approach to sustainability regulations and policy. It says that going beyond compliance can lead to an advantage over the competition: “Without decisive action, companies could face a constrained future where policymakers have introduced increasingly stringent measures to manage sustainability crises.”

Boston Consulting Group (BCG) is similarly emphatic in its warning to boards. “Boards are not carving out time for high-value strategic work when it comes to environmental, social and governance (ESG). And that’s a problem for companies pushing for sustainability,” it states.

What is more, a survey conducted by BCG and the INSEAD Corporate Governance Centre says that 91% of directors think their boards should devote more time to strategic aspects of ESG issues.

So, if experts across numerous organisations that consult daily on stewarding companies in the direction of growth agree that integrating sustainability into corporate strategy and governing it well from the top is necessary, surely we have an intention/action gap across boardrooms worldwide. And if that is the case, where are we on the journey to getting that change into strategic thinking to underpin corporate performance?

What good governance looks like

Julie Linn Teigland, EY EMEIA Area Managing Partner and author of the EY report above, says of sustainability: “How can it not be embedded throughout the company? It needs to be infused.”

She concedes that, in the early days, hiring a Chief Sustainability Officer got senior management focused. It was how companies set targets and drove initiatives. “However, if these initiatives are not demanded by the CEO and the wider management team, they will not be embedded in corporate strategy. They will simply be a side initiative and go nowhere,” she says.

Teigland compares the situation with that of the Chief Digital Officer 10 years ago: “Take a look at how many companies have a Chief Digital Officer today. Compared with 10 years ago, it’s gone down radically, and my expectation is that Chief Sustainability Officer roles will go in the same direction. But I think it’s taking us a bit longer to get there.”

The board aside, when asked about the role of committees and the danger of siloed thinking, she says: “There’s no silver bullet. Some companies have established a sustainability committee because they recognise that sustainability information comes from all parts of the business. But there will be other relevant committees, like the remuneration committee and the audit committee, too.”

Teigland sees most companies having a structure where the sustainability committee sets the ambition, targets and KPIs, but financials and risk are covered by other committees. She points out that some companies are already scrapping sustainability committees because the work is already done in those other committees as part of their work on wider disclosures. The more specific the risk, the more detail required and the more complex the impact; that is when there is more need for a specialised committee.

Less can be more

Are companies trying to do too much? Are they losing focus on what’s really important to them and their stakeholders? “It’s essential that companies undertake a risk and materiality assessment to determine where they are and what else they need to think about, so that investors have everything they need to know,” says Teigland.

In the light of coming regulation, auditing standards and controls, companies should start with the really important things, says Teigland. “Less is more. Focus on what’s really pertinent to investors. Action plans around that are much more important than trying to comment on everything.”

This means talking about the opportunities as well as the risks. “Companies don’t talk about the upside and the potential enough. There are revenue opportunities to be had. Greener products are an additional market opportunity,” she says.

In the end, sustainability governance is good governance, she explains. Sustainability is also just good business. “We’re getting smarter about the environment around us. We’re also getting smarter about the growing cost of energy and we realise resources are not forever. Corporate reporting disclosures are about taking a more holistic view. The companies that succeed are the ones that see the bigger picture and the opportunities, and are mindful of the risks.”

Peter Van Veen, ICAEW’s Director, Corporate Governance and Stewardship, says that the CSO role is shifting in line with others. “As the role of the Chief Sustainability Officer changes so do other functions such as that of the CFO. For example, the CFO is taking on sustainability reporting as the reporting processes, controls and assurance are similar to those of financial reporting. The role of the CFO will continue to evolve in this direction as sustainability activities become part of companies’ standard operations.”

The new boardroom agenda

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The new boardroom agenda: why directors are more important than ever.

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