After years of trying to get boards to pay attention to sustainability, Ceres (Coalition for Environmentally Responsible Economics) finally has an in: risk management. And just how does it plan to sell the notion that sustainability issues are a major risk? Through its investor and corporate networks.
That’s one of the main messages in Ceres latest report, The 21st Century Corporation: The Ceres Roadmap for Sustainability, which was made public on March 11. The report is meant to be an integrated approach for embedding environmental and social issues into all businesses across such areas as governance, stakeholder engagement, disclosure and performance.
“This is about understanding risk – including the risk of not seeing the opportunities your competitors see,” Mindy Lubber, Ceres president, said when announcing the report findings. “We need accelerated performance improvements from companies that reflect the true scientific and economic impacts of unchecked carbon pollution, growing water scarcity and billions of people still living and working in poverty.”
In addition to getting companies and their boards to pay attention to sustainability issues (climate change, renewable energy resources, competition for resources, economic globalization), the investor coalition has come up with 20 expectations. As far as boards go, there are five expectations in the governance area:
• Board oversight: A committee of the board will assume specific responsibility for sustainability oversight within its charter.
• Management accountability: The CEO and company management will be responsible for achieving accountability goals.
• Executive compensation: The board and management will make sure sustainability performance results are a core component of compensation and incentive packages for all executives.
• Corporate policies and management systems: Companies will embed sustainability into corporate policies and risk management systems to guide day-to-day decision-making.
• Public policy: Companies will clearly state their position on relevant sustainability public policy issues.
“Sustainability may be a risk, but it is also an opportunity,” Andrea Moffat, senior director of corporate programs for Ceres, told me earlier this week. “They [boards] should understand these issues and build accountability structures. They should make sure their companies have sustainability reports.”
The sustainability reports, which are still not required for public companies, can be used by boards to make sure sustainability issues are included in the enterprise risk management discussion and determine if they contain the right information, she said.
The report also includes examples of sustainability-related activities taken by companies, such as PepsiCo’s Frito Lay potato chip factory in Arizona aiming to have zero emissions, IBM reducing energy and water use bills at one facility by $3 million a year while increasing output by 33 percent and General Mills helping broccoli farmers switch from furrow to drip irrigation to reduce water use by 50 percent.
The next step for Ceres is to get the word out on its report and the expectations to the boards and management of the top U.S. public companies.
“Our investor network is very supportive of this report,” Moffat said. “We are working with them to get access to the S&P 500 and the Russell 1000 companies. We also run this corporate network, and we want some of the executives there to take the executive summary of the report back to their boards.”
Additionally, Moffat told me she will address the Council of Institutional Investors (CII) annual meeting in Washington, D.C., April 11-13 about the sustainability report. Ceres plans to highlight the report during its annual conference in Boston May 5-6.
David J. Vidal, research director of corporate global citizenship for The Conference Board Center for Corporate Citizenship and Sustainability, in February wrote a report, Ready or Not: Companies and the Sustainability Tipping Point. [Membership required to download.] The 16-page Executive Action Report states that the challenge for companies is how to make sustainability-centric approaches deliver not only on the financial bottom line but also on a broader platform of ecological and social accountabilities and goals that make up the sustainability blend.
Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…