How Boards can Steer Companies to “Build Back Better”

Jun 16, 2021 1 Min Read
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We are traversing into an unforeseeable era of our time. Not a single one was left unaffected. At times like this, isn't it better to have a contingency plan? However, what's even better is building a more sustainable company. After all, prevention is always better than cure.

The momentum for sustainability is strong despite misgivings over current financial strains. Few businesses can afford to ignore it.

When the history of the Covid-19 pandemic is written, it will no doubt note how, in one fell swoop, the bug accomplished something humanity had long struggled to do: slash global carbon emissions by an expected record of 7 percent in a single year. The planet we live on remains very much in the grip of climate change, and the pandemic has only underscored the destructive consequences of our “war on nature”. 

As the novel coronavirus swept the globe last year, the European Union, China, Japan and the United Kingdom announced ambitious plans to cut emissions over the next decades. Developments on the ESG (environment, social and governance) front have been especially robust in Europe. The EU Commission is holding a public consultation on sustainable corporate governance. Switzerland has held a referendum, which was rejected, on whether to impose new standards on Swiss businesses’ activities abroad. In the UK, the government plans to mandate financial disclosures by 2025, following the recommendations of the Task Force on Climate-related Financial Disclosures.    

But there appears to be a disconnect on climate action among countries. The G20 – which accounts for two-thirds of the world’s population – is spending 50 percent more in stimulus money in sectors linked to fossil fuels than low-carbon ones. Our ongoing research, published in Management & Business Review, indicates that the world of business may likewise be divided on sustainability issues.

We had previously identified five archetypes of board behaviour, from “deniers” to “true believers”, based on in-depth interviews with 25 experienced Euro­pean non-executive directors repre­senting 50 well-known companies. From a recent check-in with some of the interviewees, we find that the pandemic may have widened the gulf between those resistant to and those supportive of sustainable practices.

As one director told us: “We are fighting to survive; sustainability is not on our priority list.” Meanwhile, another said, “Covid-19 shows us that ESG consid­erations are increasingly material to our ability to create value sustain­ably.”

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This article is republished courtesy of INSEAD Knowldege. Copyright INSEAD 2021.

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References:

  1. Global Carbon Project: Coronavirus causes ‘record fall’ in fossil-fuel emissions in 2020 (An article by Pierre Friedlingstein & colleagues https://www.carbonbrief.org/global-carbon-project-coronavirus-causes-record-fall-in-fossil-fuel-emissions-in-2020)
  2. 2020 on track to be one of three warmest years on record (An article by World Meteorological Organisation https://public.wmo.int/en/media/press-release/2020-track-be-one-of-three-warmest-years-record)
  3. UN Secretary-General: "Making Peace with Nature is the Defining Task of the 21st century" (An article by United Nations Climate Change https://unfccc.int/news/un-secretary-general-making-peace-with-nature-is-the-defining-task-of-the-21st-century)
  4. Sustainable corporate governance (A consultation by Europian Commision https://ec.europa.eu/info/law/better-regulation/have-your-say/initiatives/12548-Sustainable-corporate-governance/public-consultation_en)
  5. Responsible business initiative rejected at the ballot box (An article by Jessica Davis Plüss https://www.swissinfo.ch/eng/swiss-to-vote-on-holding-companies-accountable-for-supply-chain-abuses/46184500)
  6. UK joint regulator and government TCFD Taskforce: Interim Report and Roadmap (A research paper by HM Treasury https://www.gov.uk/government/publications/uk-joint-regulator-and-government-tcfd-taskforce-interim-report-and-roadmap)
  7. Boards and Sustainability: From Aspirations to Action (A book by N. Craig Smith & Ron Soonieus https://mbrjournal.com/wp-content/uploads/2020/11/19_Boards-and-Sustainability-From-Aspirations-to-Action.pdf)
  8. Sustainability and the Five Archetypes of Boardroom Behaviour (An article by N. Craig Smith & Ron Sonnieus https://knowledge.insead.edu/responsibility/sustainability-and-the-five-archetypes-of-boardroom-behaviour-11691)
  9. Securing a green recovery (An article by We Mean Business Coalition https://www.wemeanbusinesscoalition.org/build-back-better/)
  10. The COVID-19 Investor Pulse Check Series (An article by Jeff Kotzen, Hady Farag, Callan Sainsbury, Tim Nolan, julien Ghesquieres, Gregory Rice & Eric Olsen https://www.bcg.com/publications/2020/covid-investor-pulse-survey/overview)
  11. Is sustainability undergoing a pandemic pause? (An article by Joel Makower https://www.greenbiz.com/article/sustainability-undergoing-pandemic-pause)
  12. Bill Gates Predcited the Pandemic. Here's When He Thinks It Will End, and What It Means for Your Business (An article by Jason Aten https://www.inc.com/jason-aten/bill-gates-predicted-pandemic-heres-when-he-thinks-it-will-end-what-it-means-for-your-business.html)
  13. Take Action for the Sustainable Development Goals (An article by United Nations https://www.un.org/sustainabledevelopment/sustainable-development-goals/)
  14. How Board Members Really Feel About ESG, from Deniers to True Believer (An article by N. Craig Smith & Ron Soonieus https://hbr.org/2019/04/how-board-members-really-feel-about-esg-from-deniers-to-true-believers)
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N. Craig Smith is the INSEAD Chair in Ethics and Social Responsibility, director of ESRI (the INSEAD Ethics and Social Responsibility Initiative, a part of the Hoffmann Global Institute for Business and Society), programme director of the INSEAD Healthcare Compliance Implementation Leadership Programme and a specialist professor at the INSEAD Corporate Governance Centre. He is also a member of the Scientific Committee of social responsibility rating agency Vigeo Eiris. His latest book (with Gilbert Lenssen) is Managing the Sustainable Business.

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