Is Sustainability Off the Board Agenda?

Corporate sustainability has often been integrated as a secondary strategy rather than being central to core operations. This means that as boards focus on more immediate challenges, sustainability may not always take centre stage.

That’s not to say sustainability has been ‘marginalized’ by boards. Companies continue to set net-zero targets and increase green budgets. Although sustainability efforts may be less publicized, they persist in the background, ensuring that environmental initiatives and commitments are maintained.

Below, we explain the current approach to sustainability and the state of corporate sustainability more broadly.

Corporate sustainability suffers growing pains

Increased scrutiny and accusations of greenwashing have led companies to adopt a more cautious approach to publicizing their environmental initiatives, resulting in a trend toward 'green-hushing.' According to a South Pole report, one quarter of companies with science-based net-zero targets are now choosing not to publicize these commitments.

This trend is exacerbated by the rapid introduction of stringent sustainability regulations and complex reporting requirements worldwide, which many companies find challenging to navigate. A poll of sustainability professionals revealed over half find these requirements overly complex, with some needing to align with as many as eight different frameworks.

Boards must now manoeuvre through a rapidly changing corporate sustainability landscape, and are doing so with caution.

Priorities shift from a ‘sustainability first’ approach to ‘purpose and profit’

Over the past 18 months, boards have needed to prioritize short-term financial survival, continuity, and profit generation. In light of continuing economic uncertainties, board directors see financial sustainability as a critical responsibility, often overshadowing other concerns.

In practice, this looks something like the recent approach taken by Unilever. The company has, in its own words, adopted a more balanced approach between purpose and profit, aiming to deliver on both sustainability commitments and financial goals. This is a shift from its historically ‘sustainability-first’ approach to its business model.

Sustainability remains a competitive advantage

Deloitte’s 2024 Gen Z and Millennial survey found almost half of Gen Z and 42% of Millennials have already changed or plan to change job due to climate concerns. Half of both generations say they and their colleagues are putting pressure on their employers to take action on climate change. Similarly, findings presented by EY show that by 2025, consumers will consistently prefer products or services that are less damaging to the environment, human health, and society. 

The board agenda: sustainability marches on in the background

Increased regulation, government incentives, investor expectations, and the recognition that sustainability contributes to financial success, is enough motivation for boards not to waver from this collective mission. What’s more, significant mandatory reporting measures will be, or already have been, implemented across many countries this year.

The Corporate Sustainability Reporting Directive will require companies in the EU to report on a wide array of sustainability matters from 2025. In the US, the Securities and Exchange Commission has adopted new rules requiring public companies to disclose extensive details about climate-related risks and governance.

Operating under the oversight of the IFRS Foundation, the International Sustainability Standards Board has introduced two new standards, the IFRS S1 and S2. These require sustainability-related financial information disclosures and climate-related disclosures, respectively, as of January 2024 with requirements coming into effect soon, with each jurisdiction deciding on the effective dates.

Sustainability is therefore far from being 'off the board agenda'. The decreased focus is largely due to boards grappling with a range of external challenges, including regulatory changes and the integration of sustainable practices into their operations. Sustainability efforts continue to advance, albeit more quietly and in the background – corporate sustainability is steadily progressing, though it may not always be in the spotlight.

__________________________________________________________

Get in touch. Follow the links below to discover more, or contact our dedicated leadership experts from your local Odgers Berndtson office here.