Apr 02 2024 16 mins 1
When companies face increasing uncertainty, they need to lean in and embolden management to do what is right for the business's long-term health. Nowhere is this more pertinent than on the topic of sustainability.
In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses how board members can help make a difference with Andrew Hobbs from EY's Center for Board Matters across Europe, the Middle East, India, and Africa (EMEIA).
"There's a significant strategic data and information gap at the board level"
One of the big discoveries from the recent EY survey of 200 C-suite or Non-Executive Directors was the data gap. Less than 25% of the total have been identified as leaders on the sustainability and governance front. Leaders were working from a much stronger set of metrics that helped them establish links between ESG decisions and other value-creating objectives.
"Metrics are key for good decision-making"
Effective decision-making on capital allocations for ESG and quantifying returns on investments is impossible without good metrics. Both leaders and followers reported challenges around getting good metrics that allowed them to capture the financial implications of their decisions. It's an area of opportunity.
"It isn't about creating a board full of sustainability experts. It's about encouraging boards, or giving boards enough training to ask the right questions."
Andrew says many boards are seeking members with sustainability skills, but that may not be the right solution to the problem. Instead, boards need training to ask better questions of themselves and management – questions that challenge short-term thinking, probe for a deeper analysis of financial impacts, and encompass more of a holistic, long-term view of what sustainability choices are going to do.
"We're not saying that boards need to do the job of management"
Boards need to be ready to challenge and question decisions to find meaningful solutions. If a target has been set, due to regulations or internal goals, but things are behind, how can boards create accountability and pave the way for a real change in business practices? How can boards create deeper conversations about costs, benefits, and resource allocations?
"All that gathering of data and setting up the systems and controls to report is giving boards and companies insights they didn't previously have"
There is a huge slew of regulations out there, which some companies view as a nuisance. However, Andrew believes that looking at this regulation as a compliance exercise is the wrong mindset and approach. Instead, boards need to look at these and say, "How can we turn this to our advantage?"
"Businesses need to walk the tightrope between growth and governance"
Andrew feels businesses need a balanced approach to governance and growth. One example is the use of artificial intelligence (AI) to advance or monitor sustainability efforts. Boards need to look at the business opportunities it presents and the environmental impacts surrounding the use of AI.
The three top takeaways for effective boards are:
1. Boards are the long-term stewards of an organisation. Boards need to be mindful of what's happening now and deal with that but also need to encourage a focus on the future.
2. Boards need to ask better questions to get better answers and not shy away from the challenges presented.
3. Boards play a key role in linking reporting to a stronger long-term value narrative for investors.
