Ceres’ New Analysis of Large Global Companies Links Sustainability Performance with Strong Governance Systems
May 16, 2018 /3BL Media/ - A new report released today by the nonprofit organization Ceres finds that companies with strong systems for board sustainability oversight are more likely to perform better on sustainability challenges such as climate change, water scarcity and pollution, and human rights abuses.
The report, Systems Rule: How board governance can drive sustainability performance, analyzes the board governance systems and sustainability performance of 475 of the world’s largest publicly held companies listed on the Forbes Global 2000.
“Too often companies approach sustainability oversight as a check-the-box exercise, and they are not getting strong results,” said Veena Ramani, director of the Capital Market Systems program at Ceres and co-author of the report. “Our analysis shows that companies with systematic approaches to board governance – including the right mandates, the right people and the right incentives – are the top sustainability performers.”
The report comes as companies and investors realize that urgent action is needed to combat ever intensifying sustainability challenges like climate change that are impacting corporate bottom lines. Boards are increasingly expected to be knowledgeable on these issues to help management navigate their impacts on corporate strategy and risk.
“Boards must become more aware of, and respond to, these concerns to ensure the long-term prosperity of their companies,” said Rebecca Henderson, John and Natty McArthur University professor at Harvard Business School and board member at Amgen Inc and IDEXX Laboratories. “Sustainability is a business imperative that drives long-term economic value.”
Systems Rule reinforces the validity of stakeholder calls for climate-competent boards because they show that strong governance systems drive sustainability performance.
To further build this fluency and educate corporate directors on how to oversee risks associated with climate change, Ceres and The B Team, also released a primer today, Getting Climate Smart: A primer for corporate directors in a changing environment. The primer is designed to help directors understand the potential material impacts of climate change and take action within their companies. It also equips directors with the tools and practices to understand if their business is climate resilient and how they can take action to adapt. This is particularly important given the Task Force on Climate-related Financial Disclosure (TCFD) recommendations, which emphasizes the role of corporate boards for climate change.
“The impacts of climate change will be felt across the entire economy,” said Tanuja Dehne, Senior Advisor of The B Team’s Net-Zero by 2050 Working Group, “This not a sector-specific risk. Our primer is a tool for directors at all companies to map out their future in a shifting climate.”
“Corporate directors are required to address risks that are financially material to the companies they oversee, and climate change is no exception,” said Susan MacCormac, partner, Morrison Foerster. “Get Climate Smart is a tool that corporate directors at all companies can use to determine the best means of navigating a more resilient course in the era of climate disruption."
Systems Rule Findings:
Systems Rule evaluates whether the boards of large global companies (i) establish formal mandates for sustainability oversight (ii) demonstrate expertise for sustainability and (iii) link executive compensation with sustainability. Among its findings:
- Many large companies state that their boards oversee sustainability; however their systems are largely rudimentary or piecemeal: Just 13 percent have both a formal board mandate for sustainability and disclose board-management discussions on sustainability; 17 percent have directors with expertise in sustainability, and 6 percent disclose connections between executive compensation and sustainability targets.
- Companies with the right board systems are well positioned for sustainability performance: A company that establishes a formal board mandate for sustainability issues at the board level is two times more likely to have stronger sustainability commitments. Similarly, a company whose board of directors has sustainability expertise is more than two and half more likely to have stronger sustainability commitments, and a company that links executive compensation to sustainability is two times more likely to have stronger sustainability commitments.
- The best performing companies have holistic systems for board governance, including formal mandates, expertise and incentives for sustainability.
Systems Rule builds on Ceres recently released assessment, TURNING POINT: Corporate Progress on the Ceres Roadmap for Sustainability, which evaluated over 600 U.S. companies, and found parallel results, most notably in the way that corporate boards are creating accountability for sustainability performance and tying it to executive compensation packages and incentives.
To download Systems Rule: How board governance can drive sustainability performance, visit www.ceres.org/systemsrule.
To download the Getting Climate Smart: A primer for corporate directors in a changing environment, visit www.ceres.org/climatesmartboards.
Ceres is a sustainability nonprofit organization leading the most influential investors and companies to build leadership and drive solutions throughout the economy. For more information, visit www.ceres.org or follow on Twitter @CeresNews.