On Sunday the 26th of May 2024 the Harvard Law School Forum on Corporate Governance has featured The Sustainability Board's (TSB) latest report: Sustainability Board Preparedness in Large Public Family Businesses. The report is the first research of the new Institute for Sustainable Family Business at TSB. The foreword was co-authored by Executive Director Frederik Otto and the institute's Director and Senior Advisor Michael Reed, a former executive of Royal Bank of Canada. "Our continuous features on the prestigious Corporate Governance forum of the world's most prominent law school is a testament to the high quality work of The Sustainability Board" says Otto. Otto notes: "Although TSB does not have a focus on the legal interpretation of director's duties or corporate law, we see lots of interest from lawyers and legal advisors to understand sustainability issues better and how they affect corporate decision making. More newly discussed topics such as biodiversity loss, AI, geopolitics and the boards's oversight of such issues will be an area of growing interest." TSB is committed to inform and improve sustainable leadership and corporate governance through research, thought leadership, educational programmes, and advise. View TSB's latest post on the forum View all TSB posts on the forum

Synopsis In times where a focus on sustainability governance/ESG is a key item for investors, other stakeholders and boards alike, it is useful to expand on the traditional board skills matrix. The key benefits are: Understanding the depth of directors’ sustainability experience and where additional skills are required Showcasing the experience and leadership of the board in sustainability matters (if applicable) An opportunity for developing an expanded view of a boards’ skills matrix could be when in the process of succession planning, or when looking for new directors or committee chairs with specific sustainability knowledge. When considering directors’ skills we recommend distinguishing between two levels of ESG-engagement: Download the full memo below: Short Live Webinar Thursday, June 6th, 9.30am ET / 2.30pm BST / 3.30pm CET – 30 minutes In this live webinar we will discuss how to identify the right skills and behaviours in directors, the upskilling journey, and the blurred lines between knowledge on the board and outside advice. Join Frederik Otto of The Sustainability Board & TSB Global Advisors, and Helen Wiseman, Non-Executive Director & Committee Chair of several boards globally, and President of the INSEAD International Directors Network. Watch the recording

In a move to harness the unique potential of family businesses to drive sustainability, The Sustainability Board today announced the launch of the Institute for Sustainable Family Business (ISFB). The institute's mission is to equip family business owners, executives, and boards with the tools, knowledge, and networks to lead the charge in sustainable business and governance. “Family business owners and leaders have a unique opportunity to drive impact beyond philanthropy by using their businesses as a vehicle to create a legacy of sustainability and impact”, said Michael Reed, Director of the ISFB and Senior Advisor. A new report highlights large family businesses' sustainability preparedness The institute's launch is accompanied by a new report, "Sustainability Board Preparedness in Large Family Businesses", which reveals: The world's largest public family businesses have made significant strides in aligning their boards for sustainability oversight While directors were engaged early in sustainability efforts, their engagement levels have plateaued, suggesting a need for renewed focus and innovation. Notably, individual board leadership in sustainability is significantly more gender-equal in family businesses compared to non-family businesses. Complementary micro-credential course To further support leaders working with family businesses, the ISFB is offering a complementary micro-credential course: "Introduction to Sustainable Family Business." Successful completion of the course earns participants a certified online badge. Interested leaders are encouraged to download the full report and learn more about the micro-credential course here.

What used to be singular issues like climate change and diversity has become a long list of fragmented risks significantly impacting future relevance of businesses and organisational integrity. ​ Corporate leaders are challenged by stakeholders and their own purpose to effectively navigate issues we call CHANGE factors: Climate, Human Rights, AI, Nature, Geopolitics, Equality, all in the context of an uncertain economic environment. ​ TSB Global Advisors is the new advisory arm of The Sustainability Board, setup to help boards and management teams to create preparedness for these factors harnessing sustainability governance and leadership.

In 2021 we wanted to understand who will lead the agenda on sustainable business. Who are the players that might drive it? What systems and pressures will influence their actions? 3 years closer to the target date, it's fascinating to look back at our scenarios. What has changed in sustainable leadership? ESG Intrapreneurs seem subdued, will they ever gain sway over their companies' direction? Idealist CEOs seem more like 'political CEOs' - more careful where they stand in the spectrum between left and right. AI, defence, and mega companies like the magnificent-7 have taken the spotlight off innovators in climate change or alternative foods. Leading Boards are more common today than in 2021, but ESG-engagement of directors seemed to have reached a ceiling at less than every 2nd director being ESG-engaged. Investor pressures are present, but have declined since 2023, evident in asset managers' voting behaviour against ESG shareholder proposals. With Governments and Stakeholders we seem to have been spot on. Regulation has picked up significantly. However, the US political backlash on ESG was a blind spot.

Our recent flash survey of 57 board directors, chairs, senior executives and corporate advisors revealed that they see climate change, AI, equality - diversity & inclusion (DEI), and geopolitics as the top sustainability issues impacting their organisations. Editor's note: We consider AI and geopolitics to be part of sustainability considerations due to the systemic magnitude of these issues. When asked to rank these issues in order of importance and challenge to their role, climate change topped the list, with 32% ranking it as the # 1 issue and 25% ranking it # 2. AI and geopolitics followed as the next biggest challenges. The respondents, which included 61% non-executive directors or chairs, 20% senior executives, as well as 19% corporate advisors like lawyers and consultants clearly feel underprepared to effectively govern on sustainability matters. The areas they are lacking most include: Data and intelligence on sustainability topics (44%) Clarity on incoming ESG regulations (40%) Understanding of how sustainability impacts directors' duties (33%) Stakeholder governance and engagement frameworks (28%) Appropriate oversight structures like committee setup and policies (28%) As one respondent said, "I'm lacking trustworthy data that reveals the impact of our operations and its connection to commercial factors." Some of the specific challenges mentioned include quantifying scope 3 emissions, addressing the full environmental impacts on clients and supply chains, getting board colleagues to understand the importance of sustainability oversight, securing investment for innovation, setting realistic climate targets, and encountering over-regulation. The findings suggest that corporate boards have a long way to go to up-skill and equip themselves to govern organisations in an era of heightened sustainability expectations and requirements. They need better data, external expert advise, benchmarks and governance structures to integrate sustainability issues into core oversight responsibilities. We're currently conducting qualitative interviews with board members to better understand the nuances of their challenges and to inform a more detailed report coming out later this year. Please contact us if you would like to participate.

In this episode of Leadership Conversations by TSB, Professor Alex Edmans discusses the concept of 'rational sustainability' - an evidence-based approach to sustainability that focuses on long-term value creation rather than politics or ideology. He explains how boards should evaluate sustainability issues rationally, focusing on outcomes over labels, questioning assumptions, and recognising diminishing returns and trade-offs. Alex provides examples of how sustainability initiatives driven by a desire to serve society can also lead to long-term profits. He argues that rational sustainability allows companies to make decisions that serve both business and society. Listen to the podcast here: Apple Podcasts Spotify Soundcloud About Alex Edmans Alex Edmans is Professor of Finance at London Business School. Alex has a PhD from MIT as a Fulbright Scholar, and was previously a tenured professor at Wharton and an investment banker at Morgan Stanley. Alex has spoken at the World Economic Forum in Davos, testified in the UK Parliament, and given the TED talk “What to Trust in a Post-Truth World” and the TEDx talks “The Pie-Growing Mindset” and “The Social Responsibility of Business” with a combined 2.8 million views. He serves as non-executive director of the Investor Forum, on the World Economic Forum’s Global Future Council on Responsible Investing, and on Royal London Asset Management’s Responsible Investment Advisory Committee. Alex’s book, “Grow the Pie: How Great Companies Deliver Both Purpose and Profit”, was a Financial Times Book of the Year for 2020 and has been translated into nine languages, and he is a co-author of “Principles of Corporate Finance” (with Brealey, Myers, and Allen). He has won 25 teaching awards at Wharton and LBS and was named Professor of the Year by Poets & Quants in 2021. His latest book, May Contain Lies: How Stories, Statistics, and Studies Exploit Our Biases – And What We Can Do About It will be published by Penguin Random House in April 2024. About 'Leadership Conversations by TSB' The Sustainability Board (TSB) is an independent think tank. We believe that poor leadership is a systemic risk, and that business is a powerful vehicle for positive change. As such, we aim to advance sustainable practices in leadership and governance by providing research, thought leadership, intelligence, and education programmes. Leadership Conversations is the podcast of TSB. In this interview series we interview global leaders who advocate for more positive societal impact and responsible business. Leadership Conversations is hosted by Frederik Otto.

We took the opportunity for public comment, given by the SEC and Chair Gary Gensler, on the proposed rule: S7-10-22, The Enhancement and Standardization of Climate-Related Disclosures for Investors (also known as 'Climate Change Disclosure'). We point out the importance of corporate boards to become more ESG prepared. That includes personal competence building of board directors who are tasked with oversight of ESG and sustainability issues, strategy, and disclosure. Our comments are directly responding to SEC's questions 34-36 and 38-40 of the proposed rule, focusing on board oversight, organisational setup and leadership. Please find our 4-page response below.

As we aim to advance sustainable corporate leadership and governance, we are seeking your input to inform our next research. Results will be announced via our website and other channels. Thank you for taking the time to share your experiences with us. The survey takes approximately 3 minutes. Confidentiality Assurance: Rest assured that your responses will remain strictly confidential. They will be used exclusively for research purposes.

Frederik Otto, Executive Director of The Sustainability Board was joined by Sonia Tatar, Executive Director of the INSEAD Corporate Governance Centre and INSEAD Wendel International Centre for Family Enterprise and Julia Hayhoe, portfolio NED in private companies and independent board advisor at Hayhoe Consulting. The panel discussed the evolving landscape of sustainability in corporate governance, emphasising the importance of leadership, strategic alignment, generational inclusivity, and the need for internalisation of sustainability knowledge and practices within organisations. The roundtable is part of the Sustainable Leadership Preparedness Programme. The below is a summary of the panel’s fireside chat, that was followed by a Q&A: Sustainability and Governance Overview Sonia Tatar highlights the transition from understanding the "why" of sustainability to focusing on the "how". She identified three categories of boards in relation to sustainability: early adopters (visionary and proactive), adopters (compliance-focused), and survivors (paralysed by the sustainability challenge, adopting a "delay and pray" attitude). Assessment and Strategy for Sustainability Julia Hayhoe emphasised the importance of aligning sustainability with the business’ strategy, mentioning the need for a clear purpose statement that includes stakeholders and the planet. She noted the significance of investor expectations, and CEO mindsets as indicators of an organisation's commitment to sustainability. Leadership in Sustainability Tatar and Hayhoe discussed the critical role of leadership in driving the sustainability agenda, highlighting the need for engagement at all levels of the organisation, from the board and CEO to executives and employees. They stressed the importance of setting the right tone at the top and ensuring that sustainability is embedded across the business. Challenges and Risks of Board Participation Sonia Tatar pointed out the increasing pressures and liabilities on board members regarding sustainability, which make them cautious about taking on new assignments. There's a noted change in the narrative around board participation, with increased accountability and risk of litigation. Generational Shifts and Sustainability The discussion acknowledged the need for incorporating younger generations' perspectives into board decisions, recognising their different mindsets and expectations regarding sustainability. Tatar and Hayhoe both mention the concept of shadow boards, but Hayhoe expressed scepticism about their effectiveness, advocating instead for personal engagement through reverse mentoring. The Role of Consultants vs. Directors with Specialist Knowledge Both speakers agreed that while consultants can provide valuable external insights and help build momentum for sustainability initiatives, it's crucial for the knowledge and learning to be internalised within the organisation. Board members should understand sustainability's complexities to drive the agenda effectively. Engagement of Directors in Sustainability Frederik Otto mentioned The Sustainability Board’s annual report that found that the engagement of directors in sustainability has increased significantly over the past five years but is now plateauing. This points to the growing recognition of sustainability in governance but also highlights challenges in further increasing director engagement in this area. Sonia Tatar holds a dual role at INSEAD. She is Executive Director of the INSEAD Corporate Governance Centre and INSEAD Wendel International Centre for Family Enterprise. She also is an advisory board member with the Nasdaq Center for Board Excellence, and a Board member at Chapter Zero France, as well as an Ex-Officio at the INSEAD Directors Network board. Sonia is an advocate for environmental, social and governance impact and a big believer in empowerment, engagement & purpose. Julia Hayhoe is a portfolio NED, and independent board advisor with a focus on leadership and ESG at Hayhoe Consulting. Until recently she co-led the World Economic Forum’s “The Future of the Corporation Project,” defining the corporate governance, leadership and stakeholder relationships required to advance purposeful sustainable businesses. Julia’s last corporate role was the Global Chief Strategy Officer and Global Executive Committee member at Baker McKenzie. Request access to the recording by sending an email to SLPP(at)sustainability-board.org Learn More about The Sustainability Board’s Sustainable Leadership Preparedness Programme (SLPP).

Reuters Exxon pursues lawsuit despite activist investor climb-down Exxon Mobil said Friday, 2nd of Feb, it will continue to pursue a lawsuit against two activist investors even after they withdrew a shareholder proposal on climate change, setting up a clash over what constitutes legitimate debate between a public company and its owners. Morrow Sodali What lies ahead for Corporate Governance and ESG in 2024? The 2024 outlook on corporate governance and ESG, authored by Chris Hodge, navigates through ongoing challenges in sustainability and governance. It touches on issues like climate change, regulatory advancements, and the political pushback against ESG progress. The article emphasises the importance of agile and responsive boards in facing uncertainties, especially with the backdrop of significant political events in major markets. Hodge calls for a balanced approach to governance, highlighting the need for companies to adapt to evolving standards while staying true to their core governance principles. Robert Eccles Comment: The EU’s CSDDD Usurps the Role of US Fiduciaries Robert G. Eccles discusses the impact of the EU's Corporate Sustainability Due Diligence Directive (CSDDD) on US companies, arguing it intrudes on the fiduciary duties of US boards. The directive, part of the European Green Deal aiming for carbon neutrality by 2050, requires firms to integrate human rights and environmental considerations into their operations. Eccles believes this directive could override US corporate governance laws, particularly Delaware's, posing challenges for compliance and potentially subjecting US companies to political agendas without clear guidelines for enforcement. The Sustainability Board Reading Recommendations 7th of February

Every year since 2019, The Sustainability Board has assessed the ESG preparedness of the 100 largest public companies [1] in its Annual ESG Preparedness Report following a proprietary set of criteria. This assessment included an evaluation of formalised ESG oversight, such as the establishment of a sustainability committee or the delegation of ESG responsibilities to existing committees. We assess, from publicly available information, the materiality and quality of such companies’ oversight policy and screen for board diversity, committee composition, and individual directors' engagement on sustainability issues. This memorandum outlines mechanisms that can enhance boards' accountability for ESG, highlighting our opinion as to the leading companies in each area based on our 2023 research*. We encourage other organisations and directors to review these practices for potential adoption or comparison. Relevant Committee Charter Materiality We assess the presence of a board ESG policy through the presence of a relevant board committee that stipulates ESG issues either in its committee charter, proxy statement, corporate governance policy, or annual report. Terminology for ‘sustainability committee’ varies. Some committees are named ‘ESG’ or ‘CSR’ committees. Some sustainability responsibilities are part of shared or common committees such as Corporate Governance, Nomination, Risk, Audit, or Public Policy/Affairs committees. As long as ESG oversight is clearly stipulated in their policies (mostly committee charters), these are referred to as ’relevant committees’. We screen the charters for narrative and whether material sustainability issues, as per Sustainability Accounting Standards Board (SASB), are stated. This gives an indication of the committee’s accountability. Boards with comprehensive charters that include at least 40% of material issues: Comcast Microsoft Equinor BHP Group Director ESG engagement This is an assessment of all directors’ ESG engagement who are members of a relevant committee and hence arguably tasked with ESG oversight. ESG engagement of directors is evaluated using a checklist [2], which assesses them based on three distinct criteria. A director is considered ESG-engaged if they meet at least one of these criteria. In our ESG Preparedness Report for 2023, we noted the following: 85% of directors worldwide, and 88% in the US, qualify as ESG-engaged due to their corporate experience in sustainability strategy. This engagement largely stems from their roles as either a current or retired CEO. We also look at whether the director is a member of a relevant non-profit organisation dedicated to industry specific sustainability issues. The share of directors who satisfy this criterion declined from 58% in 2022 to 53% in 2023 and is 47% in the US. The criterion with the least representation is formal certifications or credentials, with only 7% of directors meeting it. Not much progress has been made over the last 3 years in this area. Within this category, we also include lecturers, professors, and other faculty members who teach sustainability topics. Interestingly, these educators outnumber the individuals who possess formal (disclosed) certifications or credentials in the field. Boards with a high number of ESG engaged directors on their respective relevant committee (number of ESG engaged directors vs total number of committee members): China Construction Bank (5/5) Johnson & Johnson (4/4) BHP Group (4/4) Total Energies (5/6) Board gender diversity Our research shows a strong correlation between directors’ ESG engagement and gender. Women are 64% more likely to be engaged in ESG oversight than their male peers*. Hence, more women on boards will make the governance system more ESG engaged by default. Female directors were also 13% more likely to be part of a relevant committee (this number was at 24% in 2022)*. Boards that stand out with full gender equality: BNP Paribas Coca-Cola Chevron Boards with majority female directors: Citigroup AXA Sustainability or ESG report sign-off This data point confirms whether the board has signed off the company’s sustainability or ESG report. 71 out of our sample of 100 companies had their reports signed off by the board, mostly by the chair, or in rarer cases the relevant committee chair. This signifies that the board has likely reviewed the report and is up to date with targets and progress, as well as accountable for its contents. It further adds credibility to the sustainability strategy. All information is per our research cycle from September and October 2023. The full dataset can be found in our 2023 Annual ESG Preparedness Report. A note on stakeholder governance and engagement Of course, the mentioned mechanisms are not the only ones which can be used to evaluate ESG preparedness. A detailed stakeholder engagement plan is also important, albeit beyond the scope of our assessment. Essential to a corporation’s survival is maintaining its license to operate. To do this, it must gain and retain the trust of its material stakeholders: those (1) who can reasonably be expected to be significantly affected by its activities, products and services; and (2) whose actions can reasonably be expected to affect the ability of the corporation to implement its strategies and achieve its objectives. For example, the UK directors are required to include a “section 172 statement”  in the strategic report of the company’s annual return. This statement, in essence, must set out how directors have shown regard to the company’s key stakeholders whilst exercising their duty to promote the best interests of the company for the benefit of shareholders as a whole. Developing a stakeholder engagement framework for boards involves two key aspects: conducting a materiality assessment to determine relevant stakeholders and engaging with these stakeholders so that their views are available to directors when they consider key decisions for the business. Assessing who the key stakeholders are in the delivery of purpose and strategy, and selecting the appropriate mechanisms for engagement, are crucial. Different stakeholder groups may require different approaches. For instance, engaging with institutional investors might involve investor roadshows, while engaging with the workforce might include employee councils and panels. The board needs to ensure that engagement mechanisms are effective and convenient for the stakeholders, not just for the company. Learn more about our custom ESG preparedness benchmarks. Endnotes: *The Sustainability Board 2023 Annual ESG Preparedness Report [1] As per the top 100 companies of Forbes 2000;  This sample has an overweight on US, European and Chinese companies. [2] More details can be found here