Sustainability was not even an issue a few years ago in corporate board rooms. Then, in 2017, companies were hiring sustainability professionals, making corporate plans for sustainability, and looking for more to measure. What about this year? Well, it would seem that perhaps it was a bit of a fad.
In an article titled, "Is Sustainability Fading from Board Agendas?" and published in CFO Magazine, David McCann wrote that:
In 2016, BDO asked corporate directors whether they believed that disclosures regarding sustainability matters — like corporate social responsibility and the impact of climate change — were important to understanding a company’s business and provided meaningful information to investors. Three quarters of the respondents (76%) said “no.”
When the auditing and consulting firm asked the same question last year, more than half (54%) of directors said “yes.”
This year, among the 140 directors who participated in BDO’s annual survey, responses to the question flopped back to the 2016 level, with 74% saying “no.”
What the heck is going on here? Have corporate boards ended their campaign for sustainability?
In the study referenced, BDO mentions:
Last year, our survey corresponded with the significant spotlight on President Trump’s decision to pull the U.S. out of the Paris Climate Accord.
So could there have been more pressure on corporate boards to side with social capitalism in the wake of Trump's announcement to end the US's involvement in the Paris Climate change? Is this just a fashionable position that will fade? BDO seems to think it's not that simple.
As the pace of change and availability of instant data continues to drive toward a more globally conscious economy,” the firm wrote, “companies of all sizes may feel more intense pressures to publicly address what they are doing to promote good environmental, social, and governance practices.
Maybe the trend has yet to really take off. In January, BlackRock’s CEO and Chairman Laurence D. Fink sent a letter to executives at major companies to not only focus on profits but also the social good.
So will social pressure keep boards honest in this increasingly profitable market? EY seems to believe it will and offers advice in their "Top Priorities for US Boards 2018":
Boards and management should engage on long-term business, environmental and social matters more than ever before. They also need to understand the priorities of their key active and passive investors and other stakeholders, offer engagement and, where appropriate, adjust their governance practices to address investor and stakeholder priorities in ways that foster long-term business growth.
While most board members in the BDO study didn't have this as an agenda item, societal pressure and long-term value creation may mean that it will quickly reemerge.
Reality Changing Observations:
Q1. What is your opinion on whether or not Sustainability should be a corporate board issue?
Q2. How do you think social pressure is or is not creating a more social capitalism?
Q3. What do you believe could be done to make boards more conscious of sustainable initiatives?