In brief
- Insights from our latest Sustainability Leaders Panel research highlight how transforming governance is critical to accelerating progress on sustainability.
- Organisations where sustainability is embedded as a strategic imperative are 4.5x more likely to report major progress, 4x more likely to see strong strategic alignment, and 2.5x more likely to enhance their reputation.
- These results underscore the importance of legal expertise in effecting sustainable transition, because real change only happens if sustainability is fully integrated into the procedures and accountability frameworks that determine how a business sets and pursues its objectives.
- To learn more about key transformations in strategy and governance, check out our board briefing paper, Seeing beyond the ESG backlash.
What happens when sustainability becomes strategy?
Data from our latest Sustainability Leaders Panel research tells a story of two very different worlds of governance.
In one (true for nearly two-thirds of respondents), sustainability remains separate from or only partially integrated into planning and decision-making. In the other (true for the other third), sustainability has become fully integrated into strategy and governance, and/or sustainable transition is the engine of strategic direction and business model innovation.
The distinction between these two states of affairs couldn’t be more consequential. Compared to peers where sustainability lingers on the margins, leaders who've succeeded in embedding sustainability as a strategic imperative report are:
- 4x more likely to say that their organisations have achieved a great deal of progress on sustainability over the last three to five years;
- 4x more likely to see that progress as very well aligned with strategy and ambition; and
- 2.5x more likely to say that external stakeholders hold strongly positive views of their efforts;
- Also able to devote more of their time and effort to strategic leadership and innovation, versus management of specific projects.
More progress.
Better strategic alignment.
Stronger reputation.
More time spent on value-adding activities.
Isn't that what every business would want from their sustainability team, and what every corporate sustainability professional would want from their role?
Why is governance the missing key to accelerating progress?
'G' tends to be the quiet anchor of ESG, not the headline, but therein lies the rub. Without strong governance, louder promises around climate change, nature, energy transition, and social justice are built on unstable ground.
The reality is that real change only happens if it's hardwired into the procedures and accountability frameworks that determine how a business sets and pursues its objectives (which is what we believe makes legal expertise indispensable to sustainable transition).
Governance is the essential mechanism through which corporate purpose is anchored in the real meaning of a sustainable economy and society – one that equitably provisions for the wellbeing for all, within the means of a flourishing planet. And it is governance that embeds that ultimate value goal within the organisation’s strategic objectives and constituting documents, reinforced by aligned policies, incentives and accountability frameworks.
In this way, governance becomes the linchpin for meaningful change, enabling businesses to lead and benefit from a planned transition, rather than risk succumbing to the costly fallout of an unravelling world.
So, how can businesses transform their governance?
In Seeing beyond the ESG backlash: why boards cannot afford to sideline sustainability, we lay out why a sustainable transition is unavoidable, and the strategy and governance imperatives that flow from that:
Build your understanding of external context
Irrespective of short-term political turbulence, recognise that business-as-usual cannot continue indefinitely. Seek expert advice to better understand escalating systemic risks, the inevitability of sustainable transition, and the necessity of transformation to preserve future resilience and competitiveness.
We offer bespoke training for business leaders on a variety of topics including:
- The changing nature of value and fiduciary duty
- The evolving landscape of sustainability-related regulation and litigation
- Issue-specific briefings on key sustainability topics (e.g., climate change, biodiversity, equity, diversity and inclusion, supply chain resilience, and greenwashing and reputation management)
- Adopting a systemic approach to integrating sustainability into core strategy and governance
Know where you are exposed to risk, lack resilience and need to transform
Carry out a double materiality assessment (DMA) to properly evaluate your business’ impacts and dependencies on social and ecological systems, and the risks and opportunities they are likely to give rise to over the short, medium and long term. Use scenario planning to stress test the resilience of your current business model and strategy.
Done right, DMA isn't just part of the reporting process. It's a critical strategic tool, providing boards with valuable insights into where their businesses are exposed to risk, lack resilience and need to transform. That's why we recommend it to clients, whether or not they are subject to regulations that require it, and we work with strategic partners to design and deliver cost-effective processes.
Fully integrate insights into corporate purpose and strategy
Based on a deeper understanding of impacts, dependencies, risks and opportunities,
anchor corporate purpose and strategy in how the business can best contribute to a just and sustainable future. Explicitly articulate the interdependence of business and systemic resilience to encourage bold innovation, focused on directing core capabilities towards solving problems of people and planet.
Our Mishcon Purpose Framework provides a systematic approach for integrating DMA insights across corporate purpose, strategy and governance. Forming the basis of much of our ESG advisory work, it allows us to:
- Benchmark the quality existing governance arrangements relative to best practices, including the status of operational frameworks and legal documents
- Identify critical gaps and the policies, practices and processes necessary to fully embed sustainability matters into strategy, governance and risk management
- Illuminate how implementing best practices can protect and enhance value, by supporting more informed decision-making, mitigating risks, improving access to capital, and driving positive social and environmental impact
Reform governance and decision-making
Ensure that governing body structures, competencies and understanding of duties reflect accountability for achieving purpose outcomes, and empower all decision-makers to prioritising purpose outcomes through aligned policies, processes and procedures.
We draw on the expertise of specialist teams from across the firm to help design and implement the policies, practices and processes necessary to align interests and decision-making, e.g.:
- Drafting corporate constitutions, matters reserved to the board, and terms of reference of committees
- Advising on executive and employee remuneration and incentive arrangements to increase engagement and encourage behaviours aligned with the achievement of sustainability goals
- Drafting policies and procedures relating to the implementation of proactive and anticipative risk management
- Developing supply chain codes of conduct that encourage suppliers to flag emerging issues and challenges, and support joint learning and problem-solving to prevent and mitigate adverse impacts
Prepare for challenges and setbacks
Embrace the reality that sustainable transition is a process, and challenges and setbacks will occur. Put in place robust crisis management strategies and response plans to provide for swift mitigation and remediation of any adverse impacts, and establish mechanisms to apply lessons learned from any incident, addressing root causes and reducing the likelihood of reoccurrence.
Drawing on our network of international advisors, crisis communication experts, digital investigators, and experts in business strategy and public affairs, we offer specialist training and advice on handling crises and developing robust crisis management plans.
Embrace your role as agents of systemic change
It’s time for sustainability leadership to go beyond targets and commitments at the individual company level. Build coalitions and collectively advocate for market reforms that will weed out free riders and reward superior contributions to the wellbeing of people and planet. This is key to transcending the perceived tension between commerciality and sustainability.
How can Mishcon de Reya help?
Mishcon Purpose – our interdisciplinary ESG and sustainability practice – combines expert lawyers and sustainability professionals. By balancing compliance with strategic foresight, we not only help clients to mitigate risk, but also to identify and seize opportunities to lead and benefit from sustainable transition. To discuss your biggest sustainability challenges and ways we can help, get in touch.