The crucial role of the board in driving sustainable business transformation

Yet despite such efforts, board members still lack confidence that they are doing enough to keep pace with demands for more action on sustainability. 

A 2022 survey of board members by Boston Consulting Group and the INSEAD Corporate Governance Centre found that 70% of directors felt they were only moderately, or not at all, effective at integrating ESG into company strategy and governance; 43% cited the ability of their companies to execute as one of the biggest threats to delivering on ESG goals. Many board members feel ill-equipped to act on the ESG imperative in a structured and sustained way, according to leadership consulting firm Egon Zehnder.  

However, there are some key actions that boards can take to get started on sustainability. 

Adding value through strategic reflection 

The most important thing is to ensure that sustainability is part of the whole purpose and strategy of the business. This sort of strategic thinking is where boards can add most value, by analyzing societal trends, and considering the risks and opportunities that these might present. Most directors say the board should focus more on the strategic aspects of ESG than on monitoring operations, but boards are rarely effective at driving such strategic reflection, with too much time being spent on regulatory, reporting, and compliance matters instead. 

Strategic reflection means being proactive rather than reactive: thinking about the company’s purpose and material ESG issues; allocating capital to sustainability capabilities; engaging with stakeholders; and preparing for crises by developing ESG resilience. 

It is also essential to think about the capacity and effectiveness of the board. 

Finding the right governance model 

The board needs to decide how to structure its ESG activity so it adopts the most appropriate governance model for its business.  

Options include: 

• Dedicated sustainability committee: this ensures a constant focus on ESG at board level and works well for companies that are behind on sustainability and want to make fast progress. 
• Sustainability responsibility given to an existing committee: this can work when sustainability issues are straightforward, but it can also lead to distortions in priorities. 
• Multiple committees addressing sustainability: this can work well for companies with a broad committee structure, but complications can arise with coordination. 
• Sustainability board champion: a good fit for small companies where sustainability impacts just one line of product or services. 
• Full board responsibility for sustainability: this ensures that ESG matters receive a broad and diverse set of perspectives, experiences, and ideas, but can create inefficiencies in the case of large boards. 

Studies show that at present, oversight of sustainability is most commonly assigned to the full board, but board committees are playing an increasingly important role. 

Expanding the board’s knowledge and expertise 

The board also has to take steps to increase its stock of knowledge on sustainability issues. 

A lack of relevant skills among board members was cited as the biggest barrier to improved governance in this area, according to an Egon Zehnder survey of global executives. Adding ESG topics to board training may therefore have a useful role to play. In Singapore, directors of listed companies are actually now obliged to attend sustainability training courses so they are equipped with basic knowledge on ESG issues.  

Boards can also address their knowledge gaps by bringing in outside experts. A survey of global corporate leaders last year, by executive search firm Spencer Stuart, found that bringing in external consultants (42%) and additional training for board members (38%) were the most frequently used methods to build board knowledge on ESG matters.  

But recruiting new board members with sustainability expertise is likely to become a much bigger part of the solution, as the topic occupies a more central position in corporate strategy. And beyond the question of expertise, research suggests that having the right mix of individuals on the board is also key.