Embedding sustainability in the boardroom

Sustainability has reached the boardroom, but many directors are still grappling with how to embed it into governance frameworks. 

As regulatory pressures, investor expectations, and societal demands intensify, those that embrace sustainability proactively will not only mitigate risks but unlock new opportunities for innovation and growth.

Sustainability is fundamental to corporate resilience and long-term value creation as well as it being a legal duty of directors to consider material foreseeable risks. Yet, despite widespread awareness, many boards still struggle to move beyond compliance and truly integrate sustainability into their decision-making.

Research by Andreas Rasche, Professor of Business in Society at Copenhagen Business School, highlights three key enablers for boards to bring sustainability into the heart of their governance: structure, mindset and competencies. By addressing these, boards can shift from passive oversight to active stewardship, ensuring their organisations are well positioned to thrive in a rapidly changing world.

When integrating sustainability into decision-making, Rasche identified five key imperatives that boards need to consider about the relevance of ESG – legal, value, management, investor and stakeholder. 

Boards need to be aware of legal imperatives and materiality of any ESG issues, such as climate change or human rights violations. They have a value creation imperative to ensure sustainability is considered in growth, risk and productivity discussions. Boards also need to work with, and incentivise, management and engage with investors around sustainability targets and long-term strategy. Boards need to consider their social license and the changing expectations of their stakeholders.

One of the first decisions boards must make is how to structure their oversight of sustainability. Some boards fully integrate sustainability discussions into their overall governance, ensuring that all directors are engaged. Others establish a dedicated sustainability committee to provide focused oversight, though this can risk isolating these considerations from core strategy discussions. Some boards extend existing committees, such as audit or risk, to include oversight of environmental, social and governance (ESG) factors, providing a pragmatic approach that embeds sustainability into established governance structures.

Another option is to appoint a board champion or sponsor – an individual director tasked with keeping sustainability on the agenda, though this depends heavily on their influence and expertise. The right structure depends on an organisation’s sustainability maturity and complexity, requiring a careful assessment of what will drive meaningful engagement best.

Chapter Zero NZ developed a collection of resources on Effective climate governance – Board structure and capability to support boards in assessing what governance structures and director skill-sets will best support their organisations to lead on reducing the impacts of climate change and integrating sustainability.

However, even with the right structures in place, a board’s mindset determines whether sustainability is integrated effectively. 

Mindsets, assumptions and past experiences colour how we view the world, analyse the information we receive and influence decision making. Some boards take a compliance-focused approach, treating sustainability as a matter of legal and regulatory obligations. Others adopt a risk-management lens, recognising that ESG factors influence financial stability and corporate resilience. More progressive boards move towards viewing sustainability as an opportunity for value creation, aligning ESG considerations with business growth and innovation. 

Those that actively seek to integrate sustainability into their core business strategy position their organisations for long-term success rather than treating it as a standalone concern.

To lead effectively on sustainability, directors must develop the right competencies. Many boards face a sustainability knowledge gap with studies showing that only a minority of directors have significant expertise across the range of factors. Directors need to understand regulatory requirements, stakeholder expectations and the ways in which sustainability intersects with corporate strategy. More than just knowledge, they must develop the skills to navigate complexity, maintain integrity in decision making and challenge groupthink. This requires ongoing education and a commitment to diversifying board composition to bring in members with differing expertise and varied perspectives.

By refining their structure, adopting a strategic mindset and building competencies, boards can move beyond awareness and into action. For directors, this is not just a challenge but an opportunity to position their organisations as leaders in a sustainable, resilient economy.

Considerations for directors:

Structure – have you reviewed what governance structure will best support your organisation to lead on climate and sustainability factors?

Competency – have you identified the director capabilities needed and capability gaps to ensure climate and sustainability risks and opportunities are linked to your strategy?

Mindset – how are climate and sustainability discussions approached in the boardroom? Is a compliance- or risk-focused mindset restricting discussions and inhibiting opportunities?

 

*AI assisted