One of the most fundamental responsibilities of a board of directors is to safeguard a company or organisation’s long-term success in a rapidly changing world.
As the latest World Economic Forum Global Risks Report makes clear, boards must now navigate a period of heightened risk across the globe, with stability giving way to fragmentation and collaboration replaced by confrontation.
Those surveyed named geoeconomic confrontation and state-based armed conflict as the dominant risks for the next two years, but over the long-term, 10-year horizon, environmental risks including extreme weather and ecosystem collapse as well as social risks such as inequality and societal polarisation are of greatest concern to executives and thought leaders.
To traverse this fractured horizon, those charged with setting the long-term trajectory of companies and organisations are experiencing a growing gap between what is required of boards and their ability to deliver on corporate innovation governance.
Addressing this gap requires broadening perspectives at board-level discussions, while integrating sustainability and impact to create resilient and future-fit businesses.
Impact on the agenda
New corporate reporting directives mandate companies to disclose their impact on people and the planet and identify and report how sustainability topics impact their business.
In Europe, the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS) require companies to identify, assess and disclose sustainability-related impacts, risks and opportunities.
Requirements in other jurisdictions vary, yet are trending towards greater reporting and disclosure of environmental and social sustainability. Despite the backlash to green topics at a political level, the quieter yet steady updates to corporate reporting requirements moved sustainability closer to the centre of operational decision-making.
This is becoming clearer at the board level, too, with a 2024 survey of over 800 board members spread across Asia Pacific, Europe and the Americas at private, public and pre-IPO organisations finding 96 per cent expected a stronger focus on ESG.
Yet there remained a challenge for this group in understanding how this would work in practice. Nearly half wanted more clarity in how ESG goals connect to business strategy, and 46 per cent requested more insight into identifying sustainability opportunities. This demonstrates the limited ability of these boards at present to effectively guide corporate decision making and strategy when it comes to impact.
A similar pulse check of global boards conducted by Insead and BCG found 77 per cent of boards believe their company has a responsibility to address sustainability concerns, yet half of respondents are not confident their company is equipped for innovation governance, identifying new threats and opportunities related to sustainability as well as AI and geopolitics.
With this gap between reporting and action, what steps do boards and organisations need to take to turn a deeper understanding of material impacts, risks and opportunities into strategic decision-making – including planning, risk management, investment decisions and business-model innovation? And, how can organisations move from identifying and reporting matters towards understanding and acting upon what these mean for the company’s future?
Walk the talk: Social innovation to future-proof business capabilities
If impact is to become an integral part of business strategy, it must move beyond standalone programmes and be reflected in how organisations innovate, allocate resources, develop partnerships and measure success.
At the board level, the responsibility for directors is to challenge executive management to identify where societal needs and business opportunities intersect, and to ensure that the organisation has the right capabilities and incentives to pursue them.
- Inside-out and outside-in
For organisations bound by double-materiality reporting requirements, the board has a strategic responsibility to understand the interdependencies between the inside-out perspective – how a company’s activities affects people and the environment – and outside-in – how sustainability-related developments affect the company’s financial prospects. Here boards require clarity on the trade-offs across both: the cost of embedding sustainability and impact into long term business strategy and the cost of not acting. - Identifying the pathway to transformation
As impact management and transition pathways become part of strategy, and future-scenarios and impact initiative portfolios become eligible for capital and resource allocation, boards are well placed to align investment decisions with these scenarios given the necessary long-term timelines required for impact transformations to yield results. - Impact means business
Putting this into practice requires board members and executives to not only understand business, but be able to thrive in the risks and opportunities presented by incorporating impact perspectives. In some cases, this may require upskilling board members and executives, in others this could involve delegating these tasks to a chief sustainability officer or committee. However, wherever sustainability and impact expertise is located, it must be accompanied with a clear integration with the key business metrics such as resilience, competitiveness, market growth and innovation capabilities as well as employee engagement and retention. - Seats at the table
Boards must also have a clear understanding of the actual outcomes of an organisation’s impact portfolio. This means hearing directly from the communities these initiatives are designed to serve. Not only does this ensure proper oversight of the impact programmes, but these feedback loops contribute to more informed foresight. Leading with Intent finds boards with stronger knowledge of a non-profit’s programs performed better across other governance metrics, including strategic thinking and planning, engagement and commitment and external leadership and ambassadorship.
Back to basics: Stewarding for purpose in an era of disruption
While some specifics of the reporting and disclosure requirements facing boards today are new, many force directors to return to the fundamentals of governance and long-term company stewardship. Grappling with these questions about how a business is affected by social and sustainability factors as well as how a business affects the society and environment it operates in is part of identifying the core purpose of the organisation.
Understanding revenue without accounting for impact will no longer satisfy as the risk matrix confronting organisations becomes increasingly complex. Addressing these twin drivers of business success not only provides the social license to operate now, but creates opportunities to thrive in the future.
