Updated: Jan 10, 2021
Which trends and characteristics come to the fore when it comes to sustainability and corporate governance?
This question underpinned our analysis in developing the 2020 Sustainability Board Report (TSBR). It found that, although the prevalence of sustainability committees at the board level is increasing, the proportion of directors on sustainability committees with sustainability credentials remains staggeringly low: only 17%. One would expect more than one out five of the directors in a finance and audit committee to have expertise in finance. Why is that not the case for sustainability? Do certain types of company fare better?
New evidence suggests that family businesses do. Indeed, this Special Report finds that family-owned businesses, irrespective of their industry, are better equipping themselves for present and future challenges by staffing their boards with expertise and experience in sustainability – creating the foundation for robust long-term business strategies. As compared to the Forbes Global 2000 companies previously examined, the proportion of directors with sustainability credentials on sustainability committees in family-run businesses rises from 17% to 34%.
Discussions with seasoned board advisors and an analysis of the existing literature have yielded two potential reasons to explain this finding. First, family-owned businesses naturally care about the long-term. Sustainability is transformed from a buzzword to be sprinkled into annual reports to a principal fundamental to the ethos of the organisation. Second, because of their typically concentrated ownership structures, family businesses are better able to monitor and avoid opportunism by executives, which leaves space for longer-term strategic objectives like sustainability.
That said, there is no one recipe to be followed when it comes to sustainability. Having competent and experienced directors on sustainability committees does not, in itself, even begin to resolve the immense environmental, social and governance (ESG) challenges that businesses will face in the 21st century. These findings remain, however, significant and warrant further exploration and dissemination across the corporate governance world.
Browse the report here.