Sustainability - a means for boards of directors to future-proof business
Sustainability - a means for boards of directors to future-proof business
At a recent webinar hosted by Alumni we discussed the topic of sustainability in the board room with specially invited guests Anna Lindstedt and Charlotta Szczepanowski. Just what is the responsibility of the board of directors on their company’s sustainability agenda and how can companies use their sustainability strategy to future-proof their business?
There is a much shared consensus that companies now need more than ever to take action and engage with the 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015. Centering business strategy around sustainability will in the not too distant future be as pivotal as keeping balanced finances and be an increasing opportunity for competitive advantage. Whilst mainstream for many executives and their organisations our experience is that boards of directors are lagging behind.
Anna Lindstedt, has 15 years of working with strategy in sustainability. She is the founder and board director at Ethos International and senior advisor at Ethos Evaluate. Anna has been working with numerous non-executive boards to advise on how they best support and develop their company’s sustainability strategy. Advising on current and upcoming legislation she is supporting boards of directors in a hands-on way as well as working with them to prepare for a future, in a more pro-active way.
Charlotta Szczepanowski, Quality and Sustainability Manager at Coop, one of Sweden’s leading consumer co-operatives and part of Coop group. Previously Chair of The Swedish Association for Sustainable Business, a nationwide professional association and cross-industry platform. She has worked with sustainability at a strategic level for companies such as Electrolux, Posten (the Swedish Postal Services) and Riksbyggen (a Swedish housing company). Her focus has been on operational governance and process development, helping to set a direction for companies getting started with sustainability
Sustainability – the Kodak moment of our time
Anna Lindstedt opened our webinar pointing to the importance of boards of directors to widen their perspectives and look beyond the horizon. A focus on financial measures alone belongs to the past and sustainability is not only about compliance issues. Consuming natural resources at almost twice the rate that the earth can renew them is not a sustainable alternative. With the EU’s Green Deal now in place we are sure to see many new legislations coming our way and businesses need to instead focus on the opportunities that arise from this. To be successful in a few years we will see business models transitioning.
She went on to highlight some examples of companies that are currently setting a good example.
SSAB, a leading producer in the global market of highly specialized steel has set their targets on combatting CO2 emissions. In a joint development under the name of HYBRIT, they have managed to create a fossil-free steel. This new technology will have vast impact on Sweden’s total carbon dioxide emissions and potentially be able to impact the industry on a global scale. SSAB is now a frontrunner in the industry and has taken a very smart and unique position.
IKEA is building on a commitment to becoming a fully circular business by 2030. Many may view their new approach of introducing the sales of second-hand IKEA furnishings as a small PR stunt, but Anna thinks this is a very conscious and strategic choice, investigating alternative income revenues as they understand that it will never be sustainable to keep selling new and more products all the time.
Anna concluded by saying that boards of directors now must be tasked with reviewing their business models in relation to our sustainability budget and ask themselves how their companies are to make money in the future? Many will have to pivot business strategy to better harmonise with our current state of the world. In 1983 Kodak had a focused effort to explore their new digital landscape but focused too closely on the short-term profitability. In deciding to stick with their traditional approach and trying to improve profitability in what they already had, they failed to see was what they actually opted out of.
Sustainability key to a viable business in the future
In Charlotta’s view, we know what changes need to be made and it’s time to accept them and take action. Our 17 global goals for sustainable development are only possible if we all contribute to changing our societies at the core. This includes changing what we eat and how we travel to what we buy and how we buy it. As a business you will need to align strategy to these goals in order to keep up and stay in the game. Our planet is now writing checks that our societies and business are unable to cash, with a risk to the health and wellbeing of our population.
Instead of viewing sustainability as an integrated part of business strategy, Charlotta means that we must see it as a prerequisite. When setting a strategy, you must review the footprint left behind and how it impacts sustainability. There should be less of a footprint after the strategy has been executed
“Companies need to work with every aspect of sustainability simultaneously and see them as interlinked, as to avoid improving one area at the cost of another.”
Charlotta makes a point of businesses often looking to a materiality analysis and selecting a few of the global goals to work with (those in which one has the biggest footprint). This is too simplistic an approach in her view and the impact and footprint in every process of the business operations is much more complex. Companies need to work with every aspect of sustainability simultaneously and see them as interlinked, as to avoid improving one area at the cost of another. As an example, Charlotta highlights how they at Coop have taken a more holistic approach through the development of their sustainability declaration.
Boards of directors need to ensure there are methods in place to review what is important in the overreaching processes. They also need to ensure that there are methods in place to integrate sustainability in those processes. She goes on to further say that KPIs to report should be at process level, to bring to light key processes from a sustainability aspect are most important to report on for the business.
Possible ways forward
With this uncertainty on how and where to start participants in the webinar had an opportunity to gain further detailed insights. Some key points that were made:
Boards of directors can better utilize the tools at hand, such as with the Remuneration and Audit Committees. How often do you include sustainability aspects to evaluate the leadership in your company? We know that what is measured exists and can more easily be acted upon. Just as with financial targets, sustainability targets need to be in place. Just as financial data gets reported all the way up to the board of directors, so must data on sustainability.
EU is in process of launching new legislation regarding due diligence in the supply chain and this will now also extend from only impacting large companies to including small to medium sized high-risk companies. Companies will be held to account for their entire value chain.
Boards of directors can help ensure that sustainability is part of the decision-making process. Management as well as the board should be held to account for how every decision or development project effects sustainability.
Look to how financial data is reported and report on sustainability in a similar manner. Although more complex, it needs the same attention, and the two are interlinked. Failing to be proactive in your sustainability work today will leave you losing out when for instance climate changes or human rights aspects impact your future financial results.
Boards of directors need to have sustainability competence at hand and present in every step of the way. It’s not enough to have just one or two board members with knowledge into sustainability in order to keep it a top priority.
Start with a materiality analysis to better understand the core of the business, where it does impact and where it’s being impacted. This should be done per process and aggregated up as otherwise you risk missing too many aspects.
Conduct back casting exercises to help you define future goals and understand the challenges the business is facing.
Keep your eye on the long-term value and don’t get caught up by short-term losses. If you don’t prepare in time and re-adjust you will have no business left to prepare for.
To summarize it can be said that when it comes to the topic of sustainability, we all have a responsibility to gain more awareness of our own impact and act on what we can change in our everyday lives to help reach our global goals. The burden on boards of directors to ensure viable, profitable, and sustainable businesses’ is unprecedented but so also are the challenges we face with our planet. More boards need to focus now on the long-term value creation in our businesses and societies. All of us as individuals need to focus on and act to promote a more sustainable economy.
If you are curious to learn more about effective board room work, board room dynamics and business strategy get in touch with us at Alumni. Through the many dialogues we have with business owners, boards of directors and management teams we gain much perspective on how different companies are coping and proving themselves resilient in the face of a changing business landscape. We would love to share some of these insights with you to explore how we can help your organisation reach further sustainable business success.
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