Staying the course in a world upside down
Boards have important new roles in helping corporate companies navigating in an unstable world. First, overseeing that sustainability is fully embedded across the business from strategy to operations, and consequently that the company is “future fit” with a positive contribution to stabilising the ethical compass of the world.
By Lise Kingo
Navigating in a world upside down
During the recent years, the world has been turned completely upside down and we now find ourselves in a very challenging reality. Conflicts, climate change, radicalism and economic downturn – particularly for those who have the least – have become the new normal. 2023 became the “Year of Inequalities” according to the World Bank and the number of people living in democracies regressed to 1985 levels (V-Dem reports 2024). Only 2% of the world’s population live in countries where people can freely exercise their civic freedoms (Civicus 2023). Never since the Second World War have human rights violations, conflicts, divided interests on threats to the very life on the planet and its people struck at such a scale.
All these challenges are intertwined and extremely difficult to curb. But the fact that our global norm system – or ethical compass – is sliding undermines a common mindset for solving issues together. Although the UN General Assembly over the years has agreed a set of well-known universal principles, norms and declarations on key topics like human rights, climate change and sustainability, this common set of values is now crumbling. These norms have constituted our common ethical compass for decades, but today they are under extraordinary pressure. Governments, international institutions and organisations play a fundamental role in stabilising this ethical compass, but the corporate business sector is crucial as it has the means, the ability and the size to create a real tipping point when it comes to putting universal values into action.
Big expectations of corporate business
According to the 2023 Edelman Trust Barometer, corporate business has a very important role to play in societies across the world. The study, which is based on an extensive global survey in 28 countries, concludes that 62% rate business as the most trusted institution in society compared to NGOs (59%), government (52%) and media (50%). A clear majority expects that business demonstrates more social engagement in challenges like climate change, economic inequality, energy shortage, health care crisis, trustworthy information, workforce reskilling and that their CEO has public stands on issues like climate change (82%), discrimination (80%) and immigration (72%). 69% of the respondents state that the social impact of the corporation may decide their job selection, investment choices and buying preferences. Finally, the survey shows strong support for private-public-partnerships to solve global challenges, build bridges and develop a common mindset among key stakeholders. Business is expected to partner for change.
Sustainable business starts with strategy
Most international corporate businesses have some sort of sustainable business strategy and need to comply with both legal requirements and demands from stakeholders. But according to the World Benchmarking Alliance 2024, the 2,000 most influential companies are leaving hundreds of millions of people behind as just 4% of companies commit to or currently pay their workers a living wage. There is still a long way to go, and although the investment community has become a strong driver of sustainable business both from a risk and an opportunity perspective, a politically driven backlash from the US on ESG investments is taking its toll on the speed of the sustainability transition.
Many companies are still too superficial when it comes to truly embedding sustainability – or ESG – in the core of the business. ESG does not work unless it is fully integrated into strategy, operations, and company culture. Companies will not get return on investments unless full integration is established, which does require the full attention of both top management and the Board of Directors. As described in the UN Global Compact Implementation Model (see figure below), sustainability must be anchored first at the strategic level in the purpose, governance and in the corporate strategy. Next, ESG must be cascaded across the organisation into R&D, production, quality management, training, remuneration and corporate finance. Finally, sustainability must be built into stakeholder activities such as reporting, marketing and partnerships. Producing an integrated ESG report is great, as long as it is the means to the end – and not the other way around. Companies must start with strategy – not with reporting.
ESG also needs the right governance to succeed. Some businesses have established a specific board sustainability committee, others have integrated sustainability into existing board committees such as the audit, nominations, or governance committees. Each of these solutions might work very well, depending on the nature and strategy of the company. But the main point is to ensure that each company makes an informed choice and selects a model that is truly able to drive the sustainability transformation of the business.
These are clearly important themes for top management, but independent board directors have a duty to oversee the full strategic integration of sustainability across the company as well as overall compliance with the new important EU standards such as CRSD (Corporate Sustainability Reporting Directive) and CSDDD (Corporate Sustainability Due Diligence Directive).
New roles for boards in a world upside down
It is the fiduciary duty of independent board directors to ensure that sustainability is firmly anchored in the business strategy, while overseeing the implementation of the new sustainability standards.
But as the corporate board agenda has grown even more dense during the last couple of years and geopolitical issues have added a new level of complexity, board directors also have a new role in helping to navigate the geopolitical agenda and figuring out how the company may use its size and influence to help stabilise the global ethical compass. Themes such as technology, workplace organisation, attracting and retaining young people are also crucial in this respect. Companies must strive to become “future fit” and show that they are on the right side of history. Staying the course in a world upside down requires all hands on deck – including the Board of Directors.
Board oversight must include ESG
A top strategic priority
Boards must ensure full integration, target setting and monitoring of environment, social and governance (ESG) across the strategy, operations and stakeholder engagement of the company.
Failing to consider ESG is seen as a breach of fiduciary duty in the EU, and thus AGM-elected board members are required to ensure a high level of ESG performance and oversight. Legal EU frameworks such as CSRD are a board responsibility.
Most listed companies today have an ESG board committee – or ESG is included in another board committee to ensure anchoring in the governance setup.
Lise Kingo
is an independent board director of Sanofi S.A. (France), Danone S.A. (France), Covestro A.G. (Germany) and Allianz Trade (Belgium). From 2015 to 2020 she was CEO & Executive Director of United Nations Global Compact. Before that she was Executive Vice President and a member of Executive Management in Novo Nordisk.