If there is one message that comes across loud and clear from the newly released Sustainability Matters: Why and How Corporate Boards Should Become Involvedfrom The Conference Board, it is that U.S. corporate directors still lack a framework for overseeing sustainability programs.
But that’s not due to the lack of recognized frameworks. Rather, it’s more about a general misunderstanding of sustainability and how it needs to be integrated into companies’ strategic plans in order to glean the long-term shareholder value it can produce. That is evidenced by the current myth that sustainability is closely associated with climate change and that any work in that area is a complete waste of time.
“In the minds of some, there is this idea that sustainability [reporting] takes away from a company’s main focus,” David Vidal, director of The Conference Board Sustainability Center, said in a recent podcast soon to be released on the center’s web site. “That whole idea is absolutely false. You can’t be credible in terms of shareholder value unless you address sustainability concerns. Why? Because you have to address the costs of energy. You have to address the impact of climate change. If you don’t do that, in terms of boards, you are not doing your job.”
Vidal pointed out that a vast majority – about 85 percent – of U.S. companies have not done anything in the way of sustainability reporting.
The Sustainability Matters publication [Members can download here, after you log in. Non-members can purchase here.] is a compilation of articles written by Vidal; Matteo Tonello, executive director of corporate leadership at The Conference Board; and other experts in the field of sustainability and corporate governance. The report touches upon such issues as the business case for sustainability, legal protection offered to directors making socially outward-looking business decisions, and sustainability performance and communication.
“Today, more than ever, corporate sustainability has risen to the status of strategic business matter and demands supervision from the top,” said Tonello, editor of Sustainability Matters. “However, despite the extensive body of literature available on corporate governance and sustainability as separate areas of research, minimal attention has been paid to the interaction between the two. In particular, there is limited knowledge of the role that should be performed by the board of directors in designing, endorsing, and overseeing the implementation of a corporate sustainability program.”
A section of the report on emerging sustainability practices points out that “despite formal assignment of responsibilities to top corporate leaders, many U.S. companies still lack a framework to enable proper director oversight of sustainability programs.” It goes on to say that what appears to be missing is access to independent sources of information and procedures to effectively integrate sustainability objectives into daily business activities.
The report, which defines sustainability as the “pursuit of a business growth strategy by allocating financial or in-kind resources of the corporation to a social or environmental initiative,” was written as a response to inquiries by many members of The Conference Board for additional guidance on how to approach oversight of a sustainability strategy.
As for the frameworks, there are two that have been put forth as global endeavors: the Global Reporting Initiative (GRI) Reporting Framework, which is about to embark on its fourth iteration, and the International Finance Corp. (a division of the World Bank) Sustainability Framework.
The GRI Sustainability Reporting Framework provides guidance on how organizations can disclose their sustainability performance. It is divided into three sections: the sustainability reporting guidelines (includes performance indicators and management disclosures), sector supplements (includes reporting guidelines customized to a specific industry) and the technical protocol (includes guidance on how to define the content of a sustainability report). The fourth generation of the guidelines is due to be published in 2013.
The IFC’s Sustainability Framework helps protect people and the environment, promotes transparency and accountability, and supports companies in managing risks and doing business in a sustainable way. The framework, which was adopted in 2006, is primarily focused on the sustainability of international banks. It will be effective Jan. 1, 2012. Additionally, the IFC helped develop a separate corporate governance framework that goes hand in hand with the sustainability framework.
In a post on Forbes web site, Francis Vorhies, wrote: “It is hard to imagine implementation of a Sustainability Framework without good governance and thus the new Corporate Governance Development Framework is a most welcome new ‘dot’ on the sustainability roadmap.”
He cites the IFC agreement among the original 25 signatories to the Corporate Governance Development Framework that was announced last month: “As signatories to this Framework, we endeavor to work together to advance the cause of good corporate governance and help improve the governance of the companies we work with. …”
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…