Times call for sustainability agenda integration into businesses’ culture, purpose
Experts contribute 4 key board responsibilities to escape the risk of greenwashing.
More often than not, businesses unconsciously overstate their sustainability goals. This prevalent tendency for businesses to inadvertently exaggerate is the reason why companies in Singapore, like NTUC Fairprice, appointed a chief sustainability officer.
Whilst it is a step in the right direction, remedial efforts should not stop there as there should also be strong collaboration between the board of directors and the management of the firm.
Sara Galloway, co-head of global sustainability practice and consultant at Russell Reynolds Associates (RRA), cautioned that without successful collaboration, these firms run the perilous risk of being labeled as greenwashers, undermining their credibility in the eyes of stakeholders and the public.
“If the board is not supporting the management and if management's not singing from the same hymn sheet, you start to get a disconnect, and you find that sustainability efforts risk becoming disjointed or unsuccessful,” Galloway told the Singapore Business Review.
She also said the disconnect between management and the board will leave employees looking for another job.
At the stage where ESG (environmental, social, and governance) is of utmost importance in businesses, Gabriel Nam, partner at Page Executive, said businesses must take a more proactive approach to turn sustainability into their advantage apart from just fulfilling compliance reporting.
Like Galloway, Naithy Cyriac, a partner at YCP Solidiance, underscored collaboration because it will help identify and pursue short-term, medium-term, and long-term ESG priorities internally and externally.
Wendy Heng, associate director - sales & marketing for healthcare, supply chain, Robert Walters Singapore, said businesses' most senior leaders needs ESG commitment to fulfill their ESG transformation.
"One example is in the area of recruitment, where Robert Walters specialises in. If a senior leader is driving your ESG strategy, it really sets the tone when they engage personally with candidates during the interview process. Hearing directly from a leader about the organisation’s ESG vision, goals and milestones can provide a powerful statement of intent for candidates," said Heng.
Human resource experts must discuss key responsibilities for board directors to enhance ESG strategies.
Four essential responsibilities
When nearly 70% of businesses in Singapore admitted that they either inadvertently overstated or inaccurately represented their sustainability efforts, Galloway said board directors need to be educated on the material ESG risks and opportunities for the company.
According to RRA’s study, the first key responsibility, educating directors on material sustainability risks and opportunities to equip the board to productively contribute to their company’s sustainability strategy discussions.
Similar to this, Robert Walters' Heng said "creating a workforce that is fit for an ESG future will be crucial, and a strategy is required to identify, acquire, and retain these qualities required."
Page Executive’s Nam said the board should educate the company on how ESG can eliminate risk and monitor the firm to ensure that the company will see the long-term perspective of sustainability development.
“The responsibility when it comes to sustainability is to ensure that the sustainability agenda will not be isolated, and then embedded into business and strategy whenever possible,” Nam told the Singapore Business Review.
YCP Solidiance’s Cyriac said the board also needs to review the corporate purpose and culture of the firm to ensure that it is aligned with a new focus on sustainability, using a “review, re-align and reward” framework.
“This leads to realigning what your goals and key performance indicators (KPIs) are, and realigning what the organization structure should be to have a better focus on sustainability,” said Cyriac.
Robert Walters' Heng said the board must ensure that communications are in place for their people to understand why ESG matters and how they can contribute.
An example of this is a company included in the German MDAX, which launched multiple workshops with external advisors to educate its board on sustainability. The firm, which has SG$14.5b (EUR10b) revenue, included presentations from consultancy firms that tackled sustainable leadership.
Locally, Singapore Exchange is already doing sustainability training starting in 2022, which allows directors of listed companies to join at least one of the eight sustainability training courses to help them be equipped with sustainability matters.
The second key responsibility is to integrate ESG risks and objectives into the board processes and all the internal control and management systems that are linked with it, said Galloway.
Take, for example, an apparel manufacturer in Canada that has been integrating sustainability factors throughout its responsibilities. It started prioritising codifying sustainability oversight in its corporate governance and Social Responsibility Committee Charter and disclosing data for multiple external frameworks.
The third key responsibility is to oversee key sustainability risks, opportunities, and management’s key performance indicator or KPI on an ongoing basis and in close partnership with the management team.
This is what an American firm in the organic food distribution industry is doing as it implements the company’s policies and strategies to address environmental, social, and governance concerns. It includes sustainability and corporate responsibility from a corporate governance standpoint and recommends any modifications to address evolving requirements of various stakeholders.
The fourth key responsibility is to ratify management’s sustainability metrics and related disclosures, Galloway said.
“They need to ratify that the ESG data that management is providing the related strategy and goals that management is setting or looping back and are actually impacting those ESG risks and opportunities that have been identified,” she said.
Another way to evade greenwashing is to implement sustainability oversight. One can do so by hiring a board member that is flexible, meaning someone without substantial board experience but with strong sustainability exposure because the sustainability talent market is still new and underdeveloped, according to Nam.
“In the market, there are quite a lot of sustainability specialists that are keen on contributing to the sustainability agenda at the board level. I believe that certain flexibility when hiring board members will also be important,” said Nam.
Cyriac added that another way to perform a sustainability oversight is to redefine governance charters and redesign organisation charts with renewed job descriptions that align with broader corporate sustainability goals, and focus on recruiting people with cross-functional sustainability skill sets.
“If we want to have the optimal impact, it is crucial to have a comprehensive organisation that reviews, redefines, and restrategises the [sustainability] approach,” she said.
Some companies are already incorporating sustainability incentives with some of them providing variable pay to executives based on ESG performance-related criteria.
“It could even include not just variable pay but, for example, bonuses based on achievement of a certain ESG metric,” said Cyriac, adding that when it comes to ESG reporting or ESG ratings, localisation of some of these initiatives could be rewarded with incentives for the regional managers or even the suppliers across the value chain.
Reaching sustainability goals is no easy task and it varies from every sector. It could be from a fast-moving consumer goods industry on how they can reduce environmental harm from packaging or improve recyclability, Galloway said.
Oil and gas firms, which are considered the so-called “dirty industry” by some, may also struggle with transforming into renewable energy because of costs, Page Executive’s Nam said.
Cyriac has observed that many companies tend to approach sustainability initiatives as a standalone endeavor. But truly embedding sustainability at the core of a business requires a deeper level of commitment, patience, and ongoing communication with stakeholders. A cross-departmental steering committee can especially be instrumental in accelerating buy-in and implementation across the organisation.
“There is definitely a short-term impact, but it’s proven that there is a long-term positive impact. So to manage stakeholders, communication is key, along with setting the right goals and strategic action plan to get there and communicate,” Cyriac said.
“Sustainability hence needs to be ingrained within the organisation’s culture, just like the importance placed on safety for an oil and gas company. This will help drive transition in the perception of sustainability from a good to have to a must-have metric and requires sustained efforts in training employees at every level and department,” she added.
Whilst some may have the mindset to be cost-efficient with sustainability, Nam advised that it is smarter to do sustainability strategies earlier than other industry players.
“Otherwise, if they need to do a catch-up game, maybe there may have been costs that will become higher; or when it comes to hiring talent, they may need to pay for the premium to bring someone on board to fulfill the sustainability requirement instead,” he said.
For Galloway, there is still “longer-term” success in having a sustainability strategy that is included in the corporate strategy.
Heng underscored that businesses should get top management buy-in, and put into context ESG issues’ impact on an organisation’s stakeholders.
When businesses focus on ESG, they can better anticipate and respond to their stakeholders' needs.
Heng also cited a Vodafone Business Study in 2022 which noted that 74% of APAC businesses with a formal ESG programme have higher profits.
In the long run, Nam said that there is speculation that the sustainability agenda will soon be dissolved into the business. This means that there will be no need to have a single business team responsible for ESG.
Cyriac said it is “heartening” that companies are focusing on sustainability, especially in Singapore due to significant efforts from the government.
Galloway is predicting that two to three years from now, the climate agenda will “start to take over” and businesses will need to innovate on how they can run their business.
“People need to take an industry-wide view, rather than a company-wide view, which means that it’s from a board director point of view and from a management point of view. You’ve got a whole different lens on how you’re running a business,” she said.