Geraldine Matchett is a non-executive director and former CEO with roles at ABB, Nestlé, and Swiss Re. She is also a member of the foundation board at IMD. Inspired by purpose-led and performance-driven people and organizations, Matchett has deep sustainability expertise and recently led a riveting conversation about blind spots on the board at an IMD High Performance Boards Session.
What was once treated as a peripheral topic is now a core strategic consideration. Here we offer the biggest takeaways from the session and explore the emerging pressures and considerations facing board members, outlining a practical progression for how they can respond to today’s rapidly shifting environmental, regulatory, and market landscape.
Boards need to consider climate physical risk. In 2024, insured losses from natural catastrophes such as storms, floods, wildfires, and earthquakes reached $137bn, marking the fifth consecutive year with insured losses above $100bn. This figure only tells part of the story. Swiss Re reports that just over , leaving more than half uncovered and bringing the total global economic cost to $318bn. The data exposes a significant and widening protection gap with serious financial and social consequences.
The implications for boards are far-reaching. If a company’s assets are located in high-risk zones, those assets may become uninsurable, which prompts a more fundamental question over the resilience of supply chains, and the same is true for suppliers. More broadly, this exposure is also increasingly reflected in credit rating scores, capital costs, investor confidence, and long-term viability. Climate risk is no longer abstract; it is visible, quantifiable, and tied to corporate performance. At the society level, the increased financial risk carried directly by households will impact consumption, and the economic burden of weather-event-related damages will spread through the broader economy, leading to mortgage loan defaults and higher taxation.
“Sustainability is not a compliance issue alone; it is a strategic lever.”
Organizations today either flee, freeze, or fast-forward when it comes to tackling sustainability. While some avoid the issue altogether, others remain stalled by uncertainty, and the remainder accelerate their efforts. Given the implications on the short- and long-term, this choice is one boards must engage with management on today. While the decision to freeze or flee is rarely a viable option, boards must make an explicit choice and act decisively, prioritizing strategic foresight.
This mindset begins with acknowledging that sustainability is not a compliance issue alone; it is a strategic lever. From investor pressure to geopolitical shifts and supply chain disruptions to consumer behavior, the board’s understanding of sustainability must evolve beyond reporting checklists and one-off risk assessments.
Boards need a clear structure for how to think about their role. The following outlines a practical progression from compliance and oversight toward long-term value creation, which has been designed to help directors embed sustainability into their overall governance strategy.
At a minimum, boards must ensure oversight of climate, physical, and transition risks across their company’s assets and operations. This includes ensuring proper and regular assessments, either separately or as part of the corporate risk assessment process. Luckily, the tools and support for such assessments are readily available.
Boards must also stay attuned to the evolving regulatory requirements, such as the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD), the Corporate Sustainability Due Diligence Directive (CSDDD), and carbon border adjustment mechanisms (CBAM), as well as the rising ESG litigation risks. Directors should also be aware that in some jurisdictions, they may be held personally liable for failures to integrate ESG considerations in the company strategy and ensure appropriate governance, meaning their compliance processes must be transparent and robust.
Boards must also assess how sustainability-related disruptions affect business continuity and competitiveness. Climate events like droughts and floods are already reshaping supply chains, driving up costs, and distorting market dynamics. Cocoa prices, for instance, have surged fivefold – leading coffee prices to double. Boards need to identify vulnerabilities, such as reliance on river water for cooling production processes, and consider how reduced insurability could threaten asset value and financial performance stability. By requesting that these considerations be properly embedded into the normal business review, boards send a strong signal and significantly enhance their organizational resilience.
Thirdly, at the most advanced level, is when boards view sustainability as a driver of innovation and growth. Whether by investing in low-carbon technologies, rethinking product design, adapting business models, or more broadly being part of solutions, companies can lead and grow in a transitioning economy. China comes to mind here, dominating the cleantech markets globally from solar panels to hydrogen electrolyzers, so boards must also monitor the geopolitical shifts. Ultimately, sustainability should be treated not as a constraint, but as a strategic advantage.
Sustainability must be embedded horizontally across the organization and anchored in governance. Many boards debate whether to create a dedicated sustainability committee or embed it within existing structures like audit or governance committees.
Given the complexity of legislation, reporting, litigation, and science involved, boards need members with experience and expertise. At Nestlé, for instance, sustainability is covered by both a dedicated committee and joint sessions with the audit committee to ensure alignment between strategy and reporting. Strong committees help directors to stay on top of regulations and compliance, while the full board can focus on the strategic considerations.
Boards should also push for clarity and focus. With reporting requirements growing increasingly complex, companies risk getting lost in box-ticking. A double materiality approach offers a useful lens: assessing both how ESG factors impact the company financially and how the company impacts the world materially. This helps boards cut through noise and focus on what matters most.
Here are some simple questions that your board can ask itself to determine whether sustainability currently fits in their company and their boardroom:
Boards today are at a critical juncture.
Boards today are at a critical juncture. Sustainability must rise on boardroom agendas not as a regulatory checkbox, but as a strategic imperative. The risks are tangible and material, and the opportunity to act has never been greater.
To govern effectively is to govern with foresight. Boards must lean in, ask deeper questions, and ensure sustainability is no longer a blind spot but a core component of long-term resilience.
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