Board Evolution: The growing pressures of ESG and sustainability

At Berwick Partners we have recently undertaken a research project looking at ‘Board Evolution’. From our conversations with numerous CEOs, NEDs and Chairs, we have been able to highlight five areas which will be critical to the evolution of boards as we move out of the COVID-19 crisis: board structure, the importance of business culture, a focus on diversity & inclusion, the need for strong communication and the growing pressures of ESG and sustainability. Here we look at the growing pressures of ESG and sustainability…

Intro

The last 18 months has brought a number of issues to the fore – from diversity and BLM, well-being and mental health, through to sustainability and social responsibility. Many of the leaders we spoke to highlighted sustainability and social responsibility as a key priority not only for their business, but for their clients and customers as well. Many acknowledged that the path to move forward on this would not be easy, however it would be necessary to future proof their business and ensure their values align with customer and shareholders alike.

With the views from leaders from FTSE-listed manufacturers, family-owned FMCG groups, healthcare and public sector organisations, the message is clear: the recent crisis has led to an acceleration in the pace of change in the need to embed sustainability in our daily lives. In effect, the genie is out of the bottle, and organisations will be increasingly held to account by their customers, shareholders and employees.

With the UK set to host the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow in November this year, and the UK Government recently announcing its new target of bringing all greenhouse gas emissions to net zero by 2050, this critically important issue now permeates every facet of our society, and increasingly so at the boardroom table.

What the leaders had to say…

From a Sustainability perspective, the ‘social conscience’ of the nation has been awakened, with increased awareness of our ‘key workers’ and the NHS; people have seen how lockdown has reduced pollution and this has led to us being less tolerant of the abuse of our green space – such as no waste to landfill. Society and corporate organisations are now more focussed than ever on doing the right thing. If your credentials in sustainability are strong, you can demonstrate this to your shareholders.

Rob Fenwick, Chief Risk Officer, Howdens Plc

A focus on ESG is key. There is big push on diversity and there is an acute pressure point to ensure boards are reflective of society and focussing on their social responsibility.

Simon Digermans, MD of European Buyout Advisory at Carlyle, Ex Chair of FRC and former CFO of GSK

Strategic priorities have remained central; inclusion still vital, ESG will lead to a happier future and many investors now have an ESG analyst to get info from annual reports and will move towards an accreditation model.

Marni Millard, CEO Nicholls and NED at Finsbury Food

COVID has also illustrated to businesses and consumers a glimpse as to what the world could look like, with significant reduction in greenhouse gases and all the social and environmental benefits of the lock-down. It has brought with it an increased awareness from consumers and shareholders all looking for organisations to do the right thing.

Heather Benjamin, Chair of Air Ambulance UK and experienced NED across multiple sectors

Boards have for a while, quite rightly, been focusing their attention on diversity and inclusion, social, economic and environmental issues but whilst living through a period of such magnitude, all sectors need to be able to transform themselves and this skillset of transformation ought to be at the very heart of the make-up of a board.

Patrick Dunne, Director of Group Property, Procurement & Cost Base Transformation, Sainsbury’s

Boards need to be more involved with the business. No longer acceptable to keep the company at arm’s length. Need to rethink business purpose and drive transformation. Recreating organisational purpose, Addressing challenges within society. Customers are voting with their feet. Is the company is not aligned with their values they are more inclined than ever to walk away.

Simona Esposito, CEO at Hibergene Diagnostics