The Role of the Board in the Sustainability Era
Assessing sustainability in the boardroom
The respondents to our survey have extensive board experience: two-thirds are long-serving board members, with a tenure of at least 6 years, and one-third have served in their roles for more than 10 years. Respondents represented 19 different industries, including manufacturing, finance and insurance, energy, and healthcare, and more than 45 countries. Compared with results from a similar survey published in 2022, our current survey garnered more than three times the number of respondents—an indication of the increased resonance of sustainability among directors broadly.
For additional, qualitative data, through late 2022 and early 2023, we conducted a series of roundtables and discussions throughout Asia, Europe, and North America, bringing together some 200 directors. Participating directors serve on an average of three or more boards currently and have an average tenure of board service of more than 10 years. The sessions were held under the Chatham House Rule, which ensures that attendees can use the information discussed but that the identity of participants will not be divulged. This format set the stage for deep and candid discussions about the complex challenges facing boards today.
The need for sustainability across the full spectrum of environmental, social, and governance (ESG) issues is remaking companies, supply chains, and economies. At the same time, companies are facing disruptions on other fronts—including the potential of generative AI to change how companies operate, new trade risks, geopolitical uncertainty, and regulatory changes. Taken together, these changes are driving the most profound business transformation in 50 years—and are having a fundamental impact on how the boards governing these companies must operate.
Our global survey this year, conducted and developed in partnership by BCG, Heidrick & Struggles, and INSEAD Corporate Governance Centre, finds that boards are adapting, making changes to how they approach their own composition, their governance and process considerations, and the metrics they track. The survey, a follow-up to similar research in 2022, also reveals that boards continue to wrestle with certain challenges, most notably how to integrate sustainability fully into company strategy. And the survey highlights that these challenges are a global phenomenon, with very few differences evident in the findings across regions and sectors, despite the variances in governance practices, codes of conduct, and responsibility.
Though fully integrating sustainability into strategy and board operations is complex, there is a clear path forward. First, boards can further sharpen governance by, for example, reevaluating the makeup of the board, ensuring that deliberations take a long-term perspective, and improving transparency on issues such as director selection and evaluation. Second, the board can carve out time for deep examination of how sustainability will impact the business, digging into issues such as the prospect of scarcity for some critical resources and the opportunity to build new ecosystems to create progress. Third, directors can personally model strong leadership, including by making tough, consequential decisions and bridging the divide, where possible, between various stakeholders on contentious issues that range from balancing climate risk and energy needs to the role of stakeholder capitalism to businesses’ role in addressing societal issues.
Boards increase focus on sustainability—but gaps remain
There has been an undeniable shift in the expectations for the role of business in society. Trust in government has ebbed—and people are increasingly looking to business to lead the way in addressing major societal challenges.1 These heightened expectations, added to boards’ traditional responsibilities to oversee finances, manage risk, and select company leadership, are reshaping the role of board directors.
At the same time, regulations, including the Corporate Sustainability Reporting Directive in Europe and the universal proxy introduced by the Securities and Exchange Commission (SEC) in the United States as well as the adoption of pass-through voting by some institutional investors, are upping requirements around transparency and accountability for corporations' social and environmental impacts. In addition, while the number of shareholder lawsuits aimed directly at directors and officers on this topic is small, it is likely to grow.
To gain insight on how all these forces are shaping the agenda and work of boards, BCG, Heidrick & Struggles, and the INSEAD Corporate Governance Centre cast a wide net. The survey, conducted in early 2023, captured the insights of 879 respondents hailing from more than 45 countries and 19 industries. In parallel, a series of roundtables and discussions were conducted with some 200 directors in cities around the world.
The results of our survey show a significant shift in how boards operate. More than two-thirds of respondents (69%) reported that boards’ expanding remit is increasing time requirements for directors. Not surprisingly, the share was higher for directors in the energy (77%) and finance and insurance (74%) sectors, two sectors in which balancing the world’s need for more energy with climate change is creating significant new risks and opportunities.
Directors also cited their increased remit as one factor driving an increased focus on long-term succession planning for the board or the CEO, seeking independent advisors, or forming ad hoc committees.
Today’s environment is creating fundamental changes in traditional ways of working and the way directors are considering board composition and choosing sources of information. Just 16% of respondents said that societal expectations around sustainability are not affecting the way the board works at all.
The scope of the board director today is more challenging than it has been at any time in recent history. Yet this is also a time of great opportunity. Companies—and by extension the boards that lead them—can play a critical role in addressing some of the most consequential issues facing society while also building durable, competitive advantage. As directors step up to this role, they may want to do a gut check, asking themselves questions such as the following:
- What future do we want for this organization?
- Are we as a board spending too much time looking backward instead of forward?
- Are we managing for risk or regret?
- Do we want to oversee a company that is focused on risk management when it comes to sustainability—or is seizing opportunities and building competitive advantage?
- Are we being realistic, pragmatic, and sober-minded about the complexities of these issues, the high stakes, and the tough decisions we need to make?
- What is our contribution going to be to this organization and the global community at large, and what is our legacy?
- Are we building organizational capabilities to navigate the uncertain future and potential shifts?
In the end, real change is driven by competence, character, courage, and the resilience to follow through on the choices that have been made.
For more, read the full report here.
About the authors
Ron Soonieus (soonieus.ron@advisor.bcg.com) is a senior advisor to the Boston Consulting Group and a director in residence at the INSEAD Corporate Governance Centre. He focuses on corporate governance and sustainability and is based in Amsterdam.
David Young (young.david@bcg.com) is a managing director and senior partner at the Boston Consulting Group and is based in the firm's Boston office. He leads the firm’s global work in total societal impact and sustainability and is a Fellow of the BCG Henderson Institute.
Alice Breeden (abreeden@heidrick.com) is a partner in Heidrick & Struggles’ London office and co-regional managing partner of the CEO & Board of Directors Practice in Europe and Africa.
Jeremy Hanson (jhanson@heidrick.com) co-leads of Heidrick & Struggles' global Sustainability Practice and a member of the CEO & Board of Directors Practice; he is based in the Chicago office.
Sonia Tatar (sonia.tatar@insead.edu) is executive director of the INSEAD Corporate Governance Centre and the INSEAD Wendel International Centre for Family Enterprise. She also serves on the boards of Chapter Zero France and the NASDAQ Centre for Board Excellence.
Acknowledgments
The authors wish to thank those directors who participated in the survey and roundtables for this report. They also wish to thank BCG’s Amy Barrett, Lucile Reine, Agrippa Durrleman, and Brendan Lynch; and Heidrick & Struggles’ Louis Besland, partner, Industrial and CEO & Board of Directors practices; Les Csorba, partner, CEO & Board of Directors Practice; Marie-Hélène De Coster, partner, CEO & Board of Directors and Healthcare & Life Sciences practices; Nicolas von Rosty, partner, CEO & Board of Directors Practice; Claire Skinner, partner, CEO & Board of Directors, Industrial, and Private Equity practices; and Jiat-Hui Wu, partner, Financial Services Practice, for guidance and support during the development of the publication. They also acknowledge the contributions of Fabienne Chemin and Ivy Ng in developing the survey and analyzing the results.
Reference
1 Edelman Trust Barometer 2023, Edelman.