ESG transformation

The world needs to feed 10 billion people by 2050 and secure the welfare of a globally expanding middle class – a daunting challenge when faced with climate change and the limits of growth. What role can supervisory board members play in facilitating the ESG transformation? And is it possible for ‘value’ and ‘values’ to peacefully co-exist in a shift to a more sustainable economy?

Companies play a crucial role in the sustainability shift. Governments can set norms, offer incentives and issue penalties. But in the end, it is up to businesses to make it happen, to deliver on an economy that respects people and planet – while not forsaking profit.

Still, many companies do not yet fully comprehend the way in which ESG changes the equation. ESG is going to define the way we go about our business in the decades ahead. It is not just going to change the reporting. It is going to change our marketing, our evaluations, and our investments. It is going to define the winners and the losers in a warming world.

Along the way, ESG standards will not just become more important, but also more globalised. In June 2023, the International Sustainability Standards Board (ISSB) issued its first two IFRS Sustainability Disclosure Standards. Starting in January of 2024, ISSB standards will be the global baseline on ESG reporting.

At the very least, these standards will facilitate a more structured conversation. Probably, having better information at your disposal will lead to better decision making. And eventually, globalised standards will be an incentive for companies to find new ways to think about value – what value actually entails, how we create it, and how to preserve it.

The growing importance of ESG requires time, investments and energy from every company – and from every board member, executive and non-executive. For supervisory board members, it means investing in knowledge. ESG cannot be the responsibility of a single board member – every single one should be knowledgeable on this subject. Organising regular ESG deep dives will be essential.

This is especially true if we look at the troubling trend of executives being held liable for ESG oversights. Claims of ‘I did not know’ increasingly run into charges of litigants, who argue they should have known. The jury is still out on what this trend means for non-executives, but fact is that responsibility never comes without risks. At the same time, common sense still exists. Litigation may be a powerful way to set the agenda, a recent court case in the U.K. suggests is not a winning long term strategy. 

To be clear, investing in ESG does not mean a company should neglect profit and halt delivering financial value for its stakeholders. Transparency and reporting can never be the only answer. In the ideal situation, they are ‘just’ proof that companies are doing the right thing. But they should not stand in the way of concrete action. It is more important to have a sound investment strategy that covers all bases and delivers both value to the planet as well stakeholders.

A great way for value and values to co-exist, is to organise ESG the way companies organise safety. Safety is not delegated to a corner office of a company – it is a way of working that is exemplified by company leaders and deeply ingrained in company culture. In the same way, ESG can become an integral part of the job of every manager and employee within the company. Make it part of individual evaluations. Have a system of measuring progress. Set up an expertise center on ESG.  Invest in intrinsic motivation. In the end, companies that truly value values are a magnet for young talent that, in return, enables them to deliver more value for clients and stakeholders.

For supervisory board members, it may also be valuable to apply the United Nations Generational test (UNGT), a youth-led initiative created to gain insight into the effects of policies on current and future generations in order to deliver more sustainable policies.

A pitfall that supervisory board members should keep an eye on, is their companies’ purpose. As more businesses reconsider the role their role in this day and age, a lot of them settle on esoteric language about making the world a better place for all. Challenge them to come up with company-specific language, and to not confuse ESG with purpose. ESG is a means to realise your purpose. In the end, companies are no charities, and values do not overtake value – they are complementary.

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