Sustainability is becoming a major trend in the corporate world. To fulfill its obligations, the board of directors must master sustainable development to perfection. The first step is understanding sustainability scores (or ESG scores): how they are derived, what they represent, and how different stakeholders should use them.
The board of directors – the basis for the company’s sustainable growth
In an age where business trust is precious and critical stakeholder scrutiny is ever-increasing, it has never been more important for organizations to conduct their business according to purpose and principles, primarily to protect their reputation and maintain credibility. Corporate governance is a vital mechanism through which boards of directors can ensure that the behavior of employees is consistent with the goals and principles of the organization and that the corporate goals and values are translated into people’s decisions and actions.
The board of directors plays a key role in all aspects of corporate governance, from setting the right “tone from above” to ensuring and monitoring business controls, from encouraging appropriate behavior to direct and transparent engagement with all stakeholders. However, these processes may sometimes be disconnected, so the board’s role is to apply the right risk lens to every decision and action. For this process to be effective, the board’s composition must include the right people—promising, experienced, and curious, who have the time to understand the risk landscape and their legal and ethical responsibilities.
Boards of directors are also important because well-structured, strong leadership forms the basis for creating a multi-directional, sustainable and scalable business that can impact the world’s development. Sustainable development is a more comprehensive term that involves the balanced development of all three aspects: society, ecology, and economy.
When we talk about sustainable development in a business context, we mean a company that has integrated these three aspects into its business processes and regulates them with specific principles and policies.
Sustainability ratings
Today, “sustainable development” serves as a rather vague shorthand for maintaining ecological balance, including by preventing harm to the environment and preventing the depletion of natural resources. In business and investors, “sustainability” is considered and evaluated in three separate categories: environmental, social, and governance sustainability. Environmental disclosures include indicators on greenhouse gas emissions, water use, waste management, and other related information. Social intelligence provides workforce diversity, labor relations, product safety, employee health and safety, and community development. Information about sustainability in management includes issues of ethics, multinationalism, principles for forming boards of directors, shareholders’ rights, interaction in the supply chain, and more.
The process of creating a sustainable development strategy is similar for both corporations and private businesses. It can be simplified in the following steps:
- Analysis of the current state of the company
- Surveying employees, partners, and customers
- Interviews with key process holders
- Analysis of existing policies, regulations, and processes
- Formation of the “maturity map” of the company
- Identification and development of possible goals
- Preparation of metrics and KPIs
- Roadmap development
- Development of specific business processes
- Implementation control and adjustment.
While some board members have “mastered sustainability” in the last few years, many business leaders have not felt the need to understand the concept of sustainability and ESG or provide board training on the subject. Corporations that use the sustainability principle and related metrics do so, usually voluntarily, either based on their strategic business objectives or because they provide ESG information they are required by law.