Making sustainability a core business strategy is now commonly regarded as best practice. Indeed, there is robust evidence (1) to suggest that companies that embrace a sustainability agenda or strategy are more likely to thrive in the long term. From increased long term returns for shareholders, lower risk, and greater connection with incoming generations of consumers, it is clear that adopting a sustainable business strategy generates value. But who will lead the agenda on sustainable business? Who are the players that might drive it? What systems and pressures will influence their actions? With our latest report exploring scenarios of sustainable business leadership in 2030, we want to showcase different opportunities and risks that lie ahead for leaders. We aim to provide a projection of the upcoming decade’s ESG and sustainability narrative in an organisational context and prepare for future leadership challenges. Scenario planning is a fitting methodology for this exploration that showcases multiple futures in a thought-provoking way. The scenarios are designed to be not only plausible, but also relevant, and challenging to those who use them. Scenarios don’t describe what will happen, or what should happen. Rather, they explore what could be. In doing so, they give rise to new conversations and options in the present. The scenarios discussed in the report have been designed to stretch the thinking of leaders, enabling them to contemplate events they may consider less plausible. The ambition is to help leaders with their strategic planning processes and engender reflection and review on their approach to sustainability leadership in the here and now. In addition to our own research, experts—business leaders, board directors and their advisors, as well as leaders from academia and civil society—were interviewed and asked for their perspectives of factors influencing sustainable business leadership in the future (2030). These factors were used to build a set of four equally plausible scenarios: • ESG Intrapreneurs • Idealist CEOs • Leading Boards • Governments and Stakeholders Please join our virtual roundtable on Thursday, 1st of July 2021, 10am EDT / 3pm BST / 4pm CET / 10pm SGT. You can register here. Frederik Otto Founder of The Sustainability Board Report (1) For a comprehensive overview we recommend the September – October 2020 Harvard Business Review: Making Sustainability Count, Reprint R2005B, https://hbr.org/2020/09/making-sustainability-count

We are delighted to announce that The Sustainability Board Report (TSBR) is joining the The Council for Inclusive Capitalism as an ally. The council is a historic collaboration of CEOs and global leaders working with the moral guidance of Pope Francis to harness the power of business for good. Their mission is to harness the private sector to create a more inclusive, sustainable, and trusted economic system. TSBR is thriving to inspire world leading organisations by showcasing different dimensions of good corporate governance and the importance of sustainable corporate leadership. As an ally we work in parallel to the mission and values of the council. Learn more here: https://www.inclusivecapitalism.com/

As part of our latest Special Report on Family Business, we sat down virtually with German Herrera of Egon Zehnder, a renowned global leadership advisory firm. We wanted to better understand the dynamics of family business and their approach to sustainability. German works closely with family members and owners to create an environment conducive to driving the best people decisions, including leadership succession and governance across generations. He also works closely with boards and CEOs on succession strategies, recruiting, assessing, developing and retaining leadership talent. TSBR: What do you consider are the fundamental differences between family businesses (FB) and non-family businesses (NFB)? German: There are a lot of small differences that individually probably don’t mean much, but if you add them up it makes a big, big difference. Starting with the fact that family owned companies are usually trying to, what I call, ‘optimise a different equation’ to a public NFB or a private equity (PE) backed company. These latter firms are focused on maximising shareholder value, and PE backed companies are focused on ‘exit value’. "What you see in family business is that they are trying to maximise their equation. Every family has a different one." But they also have many things in common: First, they have more of a long term view – they are not thinking in quarters or three years – they are thinking in generations: “What am I going to leave for my kids?”, “What am I going to leave for my grandkids?” Second, FB think about stakeholders in a broad way. It’s not only shareholders. It’s also the communities in which they operate. Finally, people who are making the decisions and who are ‘running the show’, are not thinking about their pay check, their bonus, or their stock appreciation – they are thinking a little more about ‘legacy’. When you put all these points together it makes a huge difference in terms of perspective, impact and the equation they are trying to optimise. TSBR: Considering current global challenges, but also your mentioned ‘long term view’ that FB are taking, what are their strategic priorities? German: Every FB has a different priority. It’s based on their individual needs, legacy and exposure, but if I had to generalise or summarise: "The best strategic framework in application that I know is 3Ps: Profit, People, Planet (1)." We all recognise that a company needs to make profit in order to stay alive. But in FB ‘People’ and ‘Planet’ follow closely. TSBR: Do you feel there is a different approach to corporate governance between FB and NFB? German: I think there is. NFB that are publicly traded focus more on regulation, oversight and fiduciary responsibility, whilst trying to minimise their overall risk. Public FB admittedly will follow a similar approach. The board’s role in a private FB is more to help the owners with their equation of the 3Ps (Profit, People and Planet). Of course, between FB and NFB there are overlaps with respect to risk management and diversification. In the end, boards tend to converge in what they do, regardless whether a company is private or public. What is remarkable for FB though is that they would usually start off with more of an advisory board that transforms over time into a fiduciary oversight body. TSBR: Trying to bridge to sustainability and ESG now – it is becoming best practice to incorporate sustainability matters into the core strategy of a company. Do your clients talk to you about sustainability? Do they embrace it? How do FB approach this? German: Yes, on both. We’re getting asked about it a lot. My sense is, when you’re talking to FB, especially those that have a high concentration around family ownership, sustainability is in their DNA. Since the day they were founded this is what they believe in and they use their companies to help. A good example is ‘Patagonia’ – since their inception their value proposition was always around sustainability. Today, they are an example in many cases. You have everybody interested in sustainability today. There are multiple reasons and it’s hard to pinpoint who is doing it for what. But there are people who really believe in sustainability and think it is important when you have the means and the power and the scale. There are others who are worried about not caring for sustainability enough and it’s becoming more of a problem for them. Then, there are companies that are getting pressure from their consumers and investors, and some are embracing sustainability simply because they need to attract the best people. "If you’re a company that does well and good, more people are going to want to work for you." In my eyes, as long as we’re proactive about sustainability and add value – it’s a win-win. TSBR: Considering that FBs have a higher percentage of Sustainability/ESG competent directors – what might motivate a candidate to join a FB board and what makes those companies attractive for candidates? German: That is a very loaded question (smiles). I do a lot of board searches. Different people have different reasons for joining a board. You get people who just want to join a board because it is prestigious, or they simply have time on their hands. On the other side, you get individuals who want to give back. They have already made their money; they had a successful career – those people are a bit more selective. They select a board based on impact and purpose. So, if someone is more purposeful and has a better track record and general interest – they will be drawn to boards that have more meaning, more impact and are more interested in the long-term. "Boards with more conviction about sustainably attract the people that are aligned with them." TSBR: Do you think it is important to have a stand-alone sustainability committee on board level? German: I believe boards who have a committee are more serious about it (sustainability) than those who don’t. I’m not in favour of having a committee just to say you have one, meaning you must put resources behind it too. It is important to establish a structure that enables you to do what you want to do, otherwise it becomes an unfunctional or incompetent committee. TSBR: How would you summarise why FB are doing better in appointing ESG competent directors than NFB? German: Care. Because they are doing it for the right reasons. Because they are thinking long, long, long term. They are thinking hundreds of years – generations. That’s what moves them. When you have the flexibility, liberty and luxury to think with that kind of timeframe – you’re also making better decisions. About German: As Egon Zehnder’s Family Business Advisory Practice Global Co-leader, German assists families, owners, and managers in navigating the challenges of leadership, succession, and governance across generations. He established and led the firm’s Miami office for nine years, working closely with multinational companies, family-owned businesses, and private equity firms. He also played a foundational role in opening the firm’s office in Bogotá, Colombia. German has a master’s of business administration from Harvard Business School and bachelor’s degree in industrial engineering from Columbia University. He loves spending time outdoors with family and friends. Currently, German is on the Board of Trustees of the Pan American Development Foundation, which works to promote economic opportunity in Latin America and the Caribbean. References: (1) John Elkington, Triple Bottom Line or 3P framework

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.

We’re delighted to announce that Helle Bank Jorgensen is joining our non-profit project as Senior Adviser. We were able to secure a thought-provoking essay from Helle for our 2020 'The Sustainability Board Report' (SBR) on ‘Sustainability in the Boardroom’. Helle was widely lauded by the global corporate governance and sustainability community for her interpretation of SBR’s data. Her narrative of urging caution around potential litigation pertaining to insufficient sustainability credentials of directors, resonated. The collaboration between Helle and SBR has uncovered great synergies between our research and Helle’s experience working with executive and non-executive board directors. Helle will support our group as a sounding board, and comment on new research as well as promote the importance of sustainability and ESG competence to directors on sustainability committees and to those who are close to such matters. You can find Helle’s essay on ‘Sustainability in the Boardroom’ on page 12 of the 2020 The Sustainability Board Report here. About Helle Bank Jorgensen: Helle Bank Jorgensen is the CEO of the Global ESG Competent Boards Certificate Program. Helle is a globally recognised sustainability, climate change, and ESG advisor with close to 30 years of experience helping global companies and investors turn sustainability into strong and reliable financial results. Apart from being a board member, Helle serves on His Royal Highness Prince of Wales A4S Global Expert Panel, the Cornerstone Capital Global Advisory Council, the WBCSD Governance & Internal Oversight High-Level Advisory Group, and she is a judge for the Ethical Corporation awards. Helle also is a Board Facilitator for the UN Global Compact Board Program and a regular keynote speaker and author of many thought-leading articles and books. She was the creator of the world's first Green Account based on life cycle assessment and the world's first Integrated Report and the first holistic responsible supply chain program. Before starting her own company, she was a partner at PwC for 11 years, building and leading sustainability practices in Denmark and the US, and build the Canadian chapter of the UN Global Compact. About The Sustainability Board Report: The Sustainability Board Report is a privately funded not-for-profit project developed by a group of individuals passionate about sustainability leadership. We believe that business can drive meaningful change. We aim to showcase different dimensions of good corporate governance and the importance of sustainable corporate leadership. By drawing out best practice and changes over time, the report also aims to help organisations learn from their peers and competitors and understand the changing landscape.

The Sustainability Board Report aims to showcase different dimensions of good corporate governance and the importance of sustainable corporate leadership. By drawing out best practice and changes over time, it also aims to help organisations learn from their peers and competitors and understand the changing landscape. The 2019 Report found that, despite significant variation in the quality and quantity of sustainability reporting, including across regions, there were certain key elements and patterns that made certain companies stand out. These were: the existence of board committees dedicated to sustainability; board committee charters explicitly addressing sustainability issues; and female representation on boards. The latter was linked to the finding that women board members were often responsible for driving sustainability efforts. Our 2020 report explores these issues once again with an added focus on what has changed in the past year. Three takeaways emerge. First, we find that there has been a significant increase in the number of sustainability board committees across the 100 largest of the Forbes Global 2000 companies, driven mainly by increases in China. Second, expertise in sustainability and relevant prior experience at the board level tackling these issues is on the rise. Third, the past year has seen incremental increases in overall gender diversity on corporate boards. We conclude that, despite the direction of change being positive, its pace remains too slow. The world is changing – perhaps faster than ever before. As environmental and societal challenges increase, company boards have an obligation to equip themselves with the people, the knowledge, and the tools needed to promote long-term sustainability. How fast they are able to change and anticipate trends will be a measure of their success. This is the Executive Summary of The Sustainabilty Board Report 2020

We have developed an organisational framework that taps into the power of purpose, individual management style and fosters outcomes that benefit all stakeholders in a corporate ecosystem. We call it the PEP framework (PEP): Purpose, Enablement and the second P stands for various terms: Productivity, Performance, Profitability, Prosperity, Parity. PEP does not only cater to the changing needs of a modern organisation, but also embraces a more stakeholder centric approach due to its interconnected application throughout all of a company’s stakeholder groups. An equilibrium of all stakeholder interest [1] is commonly regarded as the gold standard for organisational health and performance. The needs of stakeholders in a corporate ecosystem are changing. New generations of employees (Gen Y&Z) who are soon making up the majority of workforce in companies are demanding more than just safe and fairly compensated work. They want to see meaning in the work they do. Suppliers want to grow, partner and learn with their customers rather than just fulfilling orders. Customers are after experiences, rather than just supply for their demand. Communities expect business to take an ever more just and responsible role in society. Shareholders want to earn sustainable profits, and make sure that the companies they own stay innovative, agile and relevant. How PEP works Let’s assume a current “conventional” organisation that mostly caters to the fiduciary interests of investors; one’s management style would be focused almost exclusively around monetary targets and the P&L. This could be for example: Maximising employee’s workload in their respectively assigned roles. Securing supply at the lowest possible price with the longest possible payment terms. Committing customers to the highest willingness to pay with the least possible liability and warranty for provided services and products. And, highest possible acceptance of business operations by a community at lowest possible taxation and most favorable regulatory environment. In this scenario, organisational targets and values are set top-down, deviations require sign offs bottom-up, the comprehensiveness of such signoffs in case one needs “to do things differently” is depending on the number of managerial layers. PEP takes a different approach. Firstly, the guiding principles require a clearly articulated corporate strategy with directions of travel and a clear vision. A good corporate strategy replaces the budgetary “true north”. Secondly, it requires an authentic purpose. That is, a clearly articulated mission that unites all stakeholders behind a common goal and gives the business’ output a wider meaning; often linked to social or environmental context. The benefits of purpose applied in organisational development have been vastly explored recently by some of the world leading authorities on business management [2]. The entire organisation will work towards the strategy organically rather than only top-down, using its purpose as the driver. Financial targets are part of the strategy, nonetheless. Each stakeholder group is then managed under the PEP principles: Employees: P for Purpose: What is their (personal) purpose? How does this tie in with the corporate purpose? How can their tasks be translated into a role that supports their purpose? Achieving the maximum employee satisfaction through enabling (E) their purpose will lead to maximum productivity (P) naturally. A realignment of employee’s roles within an organisation will take some time but all workload will be covered through the organic integration of employee’s roles in the corporate ecosystem. Suppliers: Their first P (purpose) is to supply services and products to a customer to pay their bills. But that is just the tip of the iceberg. Every supplier grows, learns and ultimately derives value from their relationships with their customer far beyond just making profit. Often, suppliers are even performing their services below their actual cost, as they consider certain customers as “strategic”. They feel they are gaining more through their relationship with a customer in a certain scenario and forgo profitability intentionally. Hence, it is important to enable (E) a supplier and strategically align with them. Both sides will ultimately gain peak performance (2nd P) only through mutual understanding of one’s purpose (P again). Customers: Basic economic theory tells us that customers demand the highest quality product or service for the lowest possible price. Their purpose (P) is to align their willingness to pay to their demanded product or service. What has become more dominant in recent years is ‘customer experience’. Modern customer satisfaction is a combination of matching willingness to pay with outstanding experiences. In other words, it is important to not only enable (E) a transaction from a supply and demand perspective but also to overachieve and be innovative. Much can be written of how to succeed in outstanding customer experiences. Let’s just agree that innovative and creative firms tend to do better here- often enabled by employees and/or suppliers as well as communities. Lastly, customers’ second P would be for instance: Pleasure. That’s what’s derived of a transaction. Community: A business’ purpose (P) regarding their communities is to thrive and be in balance with society and the environment. This has been a challenge, for example, for the extractive industry for years. Their communal impact is so material that they should be leading from the front. Point being, there is a varying materiality of how much power your business has in order to contribute to environmental and social balance. Let’s just explore the basics; How do you enable (E) your community? Here a few very simplified suggestions: Provide quality jobs. Ensure you are supporting the future of work. Paying fair taxes. Eradicate any environmental impact that is caused by one’s business. Enabling communities will result in achieving the second P- prosperity and parity (reducing inequality). Shareholders: Although it might seem counterintuitive, we’re strong believers of shareholders being the easiest to satisfy out of all stakeholders. That is, enabling (E) each stakeholder’s purpose (P) generates a second P also for shareholders: Profitability. Recent research [3] by Harvard Business School shows that driving purpose increases outperformance- not necessarily higher profitability, but certainly never less. The top 10% of the world’s companies are 100% more productive than the bottom 10% [4]. Most of the top bracket are companies strongly driven (and enabled) by purpose. The role of the board The advantage of PEP is that it can be implemented at any organisational level. It is simple, logic, and purposeful. In also gives middle management more freedom in decision making, and autonomy in negotiations with the various stakeholder groups. However, a healthy level of corporate governance and supervision also is required for PEP. We recommend implementing quantitative “thresholds” for managers to act within, around each ‘P’ and the ‘E’. That is for example, giving managers the flexibility to redesign employees’ roles or adjust their salaries to a certain extent. It could be fixed percentage thresholds that cannot be under- or over-shot when managers are negotiating with suppliers. Or perhaps a threshold for price adjustments that managers need to adhere to, for services and/or products as well as minimum quotas for new hires hailing from local communities. When analysing your company’s current level of ‘thresholds’, you will most certainly find that you already have a lot of similar controls in place. Most likely, they have never been used in a PEP context, however. The board will be helpful to approve any initiatives that lie outside of those thresholds. This not only keeps the level of governance as lean as possible, but it also flags major organisational shifts to the board directly, that could imbalance the stakeholder equilibrium that is supposed to be maintained under PEP. Remember, that bringing this equilibrium out of balance will decrease the shareholder value too. Governing PEP will not necessarily require a new board committee, although this is certainly a possibility. To keep a company’s board lean, any ‘threshold signoffs’ can be done within existing committees. ‘PEP signoffs’ simply become another point on the agenda when committees gather. A board itself can be setup under PEP as well. As Colin Mayer has found in his often-cited book Prosperity, governing fiduciary responsibility is an important part of a board of directors’ duties, but more than anything it is: “Being the custodian of a company’s purpose.” We will be publishing more details on the framework's application soon. [1] E.g. https://onlinelibrary.wiley.com/doi/abs/10.3982/ECTA11455 [2] E.g. http://nrs.harvard.edu/urn-3:HUL.InstRepos:30903237 or https://www.kksadvisors.com/value-of-corporate-purpose [3] http://nrs.harvard.edu/urn-3:HUL.InstRepos:30903237 [4] Syverson, 2004

When we, 'The Sustainability Board Report' advisory team, gathered as a group at the beginning of the pandemic, we did not anticipate our latest report to be titled: “COVID-19, The Acceleration of Stakeholder Centricity”. The original idea was to measure ‘corporate purpose’ and examine how purpose creates organisational resilience in times of crisis. So, how did we get here? On our journey to measure corporate purpose we conducted various brainstorming sessions, collected data samples, and analysed various purpose statements with different methodologies, and quite frankly, philosophies. We were trying to develop a holistic measurement tool that uses proxy metrics that would be applicable to any corporation that has a defined purpose – we did not succeed. Not only were we skeptic of various external data sources that, on paper, might have provided the data needed for our model, but we also realised that in order to successfully measure purpose you must be inside of a company. It’s a very individual thing. Our journey of understanding corporate purpose in a more structured way has however, led to a focus on a business’ stakeholder ecosystem. Normally, four stakeholder groups are considered a critical variable to a company’s success: Employees Suppliers Customers Community ‘Stakeholder Theory’ has been around for a while. Investigating it further in a crisis’s context seemed like a natural alternative to a hard measurement of purpose. COVID-19 is not only a global tragedy, but also a once in a lifetime opportunity to dissect and analyse change – with rolling 24/7 coverage of actions and initiatives. And that’s what we focused on: Disclosure of actions taken by large companies relating to their stakeholder community. Our approach was pragmatic. We were only reporting on COVID-19 responses that companies have disclosed themselves. What stands out are the differences in treatment of the 4 main stakeholder groups. We were keen to understand if there has been a shift towards a more sustainable and inclusive treatment of all stakeholders, and how that concerns corporate governance.

It’s tough times, not only physically but also mentally. Updates of the COVID-19 virus are emerging rapidly, and we are being fed new updates and developments on an hourly basis. The current rhetoric is chaos and panic in the Western world, Asia has calmed a little and China is on its way to recovery. Let’s hope it’s all over soon. Anyhow, let’s take a moment to look at the corporate mechanisms in this global crisis. I feel, that for the first time in my lifetime business is trying to chip in and do its part. A moment like this is the essence of our economic system. After trillions of dollars have been shaved off corporate market capitalisation, absolutely no one cares about your business’ profitability at this point, let alone quarterly earnings. The concern is all about society at large. What can we do to make sure an economic downturn is affecting our employees and communities as little as possible? How can we make sure that unpaid leave, forced paid leave or taking on tasks outside of one’s scope are not interfering with people’s livelihoods and/or sanity? And, how can we make sure when business is picking up again, our people are motivated and instantly ready to go again? It all comes down to corporate purpose! People will be more inclined making it work for both sides if they believe in your company’s higher purpose. That is your purpose literally, or your vision, mission and/or values. Here is an example of an employee of a global tech company: “Ok, I understand my job is such and such but I’m helping out with these other tasks as we’re on a hiring freeze, but I really believe in this company’s purpose of enabling economic growth through the power of technology. I want to work here long-term and build a career and keep enabling my community”. Now is the time to show the world and your immediate stakeholders that it isn’t only about shareholder value creation and short-termism but creating the maximum value and sustainability for your company’s community of stakeholders. The organizational resilience that you’re able to create in times like these will set you up for long term loyalty and productivity, which will be pivotal once business picks up again. Fact is: The top 10 percent of the most productive corporations are twice as productive as the bottom 10th percentile (Syverson, 2004). You might ask what does this have to do with purpose? Well, there are now numerous research papers that show that the main driver for productivity is purpose paired with clarity of a company’s strategic direction and priorities. Granted, business with slim margins, high debt, and those who have been immediately hit hardest by the crisis (airlines, hotels, restaurants, etc.) will need more than their employee’s commitment. Hard cash that is, which will be the government’s job to support. Not only are many corporations currently putting their money where their mouth is, but they will emerge as true heroes with great productivity, high employee retention and ultimately high overall organizational resilience. Those who are not aligning their actions to their purpose, or don’t have a purpose altogether, won’t. Bring your people together through the power of purpose.

Research into the top 100 public companies shows the right board composition can boost sustainability commitments and drive change. By now all major companies have some sort of policy on sustainability and/or environmental, social and governance (ESG) issues. There is mounting pressure on boards of directors from shareholders, customers and other stakeholders who are getting nervous about sustainability or ESG inaction. The advantages of a sustainable and responsible business are simply too compelling: increased innovation, improved employee retention, shared value creation that ultimately leads to higher profitability, and so on. But sustainability leadership and accountability couldn’t be more fragmented. Of the world’s 100 largest public companies, only 54 have committed to oversee the sustainability efforts of their organisations at board level. The first edition of The Sustainability Board Report, a not-for-profit project on sustainability and corporate governance, showcases which companies’ boards of directors truly focus on sustainability and ESG, and who are driving the discussion and action. Drawing on the Forbes Global 2000 list, we have chosen to look at the first 100 of the world’s 2,000 largest publicly listed companies. West to East disparity We have generally found that every company in the report has some sort of sustainability reporting. Often vast sections on corporate social responsibility (CSR) and corporate sustainability can be found on their websites. Regardless of how comprehensive these reports are, in most countries corporations are forced or at least expected to issue sustainability reporting—often driven by stock exchanges and regulatory bodies. Materiality of those reports is often questionable, as is its supervision from the executive branch and/or board of directors. US firms are leading the pack, with 71% featuring a sustainability, CSR or ESG committee The good news is that over half of all companies do in fact have a dedicated sustainability board committee. US firms are leading the pack, with 71% featuring a sustainability, CSR or ESG committee. There is, however, a clear need for Asian countries including China and Japan to catch up. Only 22% and 25% respectively of their featured companies have a relevant board committee. Although Europe is performing slightly above average, there is still some work to do. For example, none of Germany’s six companies features a dedicated board committee, whereas all four Swiss companies showcase comprehensive board policies on sustainability. Russia (four companies) features two large oil & gas firms that do not have any commitment, even though this is material for extractive businesses. Their industry counterparts in the rest of the world are doing much better. We have also found marked differences in the formulation and comprehensiveness of committee charters. One can almost tell the level of dedication to sustainability by reading those charters or proxy statements. Diversity equals commitment Although we identified a fairly large number of directors (232) who have formal membership in a sustainability committee, we found that only 36 of them really stand out as knowledgeable, determined or experienced in the topic of sustainability or ESG. Women are clearly driving the discussion and ownership of sustainability policy Our final takeaway is the importance of female representation on the relevant committees. Women have most of the relevant credentials, representing 64% of relevant directors. They are clearly driving the discussion and ownership of sustainability policy. This number is even more impressive when considering that women make up only 37% of all the identified directors. The executive search firm Egon Zehnder finds that ever more companies are appointing a specialised committee, since the benefits are so obvious. But most companies are still struggling with the right composition in terms of skills and diversity. One conclusion from our research is that it would be beneficial to include women on sustainability committees. Women appear likely to engage more enthusiastically in the topic regardless of whether their particular expertise actually lies within sustainability. A sense of purpose To gain a competitive edge as a company it is necessary to connect governance to strategy and execution. This is where the executive branch comes in again, and where the support of middle management is needed—it is traditionally the most challenging part of any major corporate initiative, but achievable by giving people the right sense of purpose. The right board composition, as well as commitment from the board chair to incorporate ESG into the agenda, will go a long way Millennials’ and Gen-Z’s consumer behaviour, which is already shifting markets and societies, is driven by ethics and sustainability, as is their approach to work. The “new” generations are guided by their purpose and eschew corporations that cannot link purpose to their job. Millennials and Gen-Z will make up over 50% of the global workforce by 2020. This means that the foundation of individuals excited about creating shared value, aka “doing well by doing good,” is there. Now it needs the right leaders to nurture this approach. Jeanette Lichner, who is a leading corporate governance adviser, leadership coach and non-executive director on various international boards, and who contributed to the report, argues that it does not necessarily need a committee to set up a company for a sustainable and long-term future. Moreover, the right board composition, as well as commitment from the board chair to incorporate ESG or sustainability into the corporate governance agenda, will go a long way. This applies especially to companies with smaller boards that might be constrained in setting up additional committees. Companies that formulate the right purpose and lead from the front will be those that reap the benefits of more sustainable business. This article was originally published on www.boardagenda.com

I’m not an expert in sustainability and my professional experience is not within academia or research. In fact, I spent most of my career in business development and management working with some of the largest and most prestigious companies. A few years ago I became fascinated with the term “Shared Value Creation” (doing well by doing good) as a definition for corporate sustainability. The narrative of doing business is clearly changing. This is why I developed The Sustainability Board Report. I believe the real achievements of business are creating profits and contributing to the conservation of our environment and adding value to society and our communities. As Larry Fink wrote in his letter to CEOs, government is often not very helpful when it comes to solving systematic problems. Some might argue that no matter how big a challenge, every person counts in making a difference despite their hierarchical status in an organisation. Whereby, I agree that every little helps. I like to think it is also universally agreed that large corporations and senior leaders have a certain power to fast track change. Just think of the power of Facebook to spread information, the many big banks and their ability to finance change, or General Motors who are committed to making the future of cars electric. Being big can be a huge advantage. That’s why this report will be focusing on the world’s largest (public) companies. So, who is holding the executive teams of these big companies to account? Certainly, it is their shareholders, investors, clients and stakeholders to some extent, but the mandate in the first place lies with their board of directors. And this is what this report is about: What is the state of boards when it comes to sustainability direction? How comprehensive is their policy and how skilled are the directors? The goal of The Sustainability Board Report is to showcase companies and individual directors, and to inspire organisations to learn from their peers and competitors. Perhaps, we can make the world a better place - through creating shared value with strong and committed corporate governance. Lastly, I’d like to thank our guest contributors for their invaluable input to the report.