In brief
- Findings from our latest Sustainability Leaders Panel Survey suggest that many businesses are holding firm on sustainability commitments, despite current political headwinds.
- However, they also reveal a worrying lack of board-level knowledge and understanding regarding escalating systemic risks, and their potentially catastrophic consequences for economic stability and business continuity.
- As the application of key regulations is delayed, and as companies dial back external communications, sustainability leaders should use this breathing space to address critical knowledge and governance gaps.
How are political headwinds affecting sustainability management?
Climate change, biodiversity loss, rising inequality and geopolitical volatility are no longer hypothetical future risks. They are already unfolding, with potentially catastrophic consequences for economic stability, business continuity, and the ability to preserve and enhance value.
Yet, at the same time, the political backlash against ESG is stoking polarisation and uncertainty, stalling momentum behind enhanced regulation and active stewardship designed to accelerate transformations in corporate strategy and governance.
So, how is this tension playing out in terms of boards' interest in, and management and communication of, sustainability matters?
Carried out in partnership with Echo Research and Good Business, this was the focus of our latest Sustainability Leaders Panel survey – our twice-yearly engagement with senior sustainability executives from around the world, to seek their insights and perspectives on emerging challenges and trends.
First, the good news…
As many companies scale back or push out their big sustainability commitments, financial institutions withdraw from active stewardship initiatives, and key regulations are diluted and delayed, results provide a reassuring counterbalance.
It's encouraging, for example, to see our Panel report that their boards' engagement with sustainability remains undimmed. Interest in sustainability issues remains high – it's even increased over the last 12 months, according to almost a third of respondents.
Against the backdrop of delayed and diluted regulation, it's also interesting that many boards are nevertheless incorporating several of the best practices those regulations expect, to enable them to make more informed decisions. For example, more than half of respondents indicate that their organisations have carried out a double materiality assessment of sustainability-related impacts, risks and opportunities (56%) in the past 12 months, and the same proportion reports boards having long-term and/or short-term incentives linked to sustainability targets.
And while responses reflect a clear view that it’s getting riskier to communicate openly on sustainability issues – with a third of respondents reporting boards' declining appetite to communicate externally – few are feeling under pressure to scale back initiatives on net zero, equity, diversity and inclusion (EDI) and human rights.
But there's a sting in the tail…
Results reveal some worrying findings too – nearly half of respondents reporting that their boards have received no sustainability-related training of any kind in the last 12 months, while only 6% have received comprehensive training on issues identified as material to their businesses.
Resources informing board decisions also skew heavily in favour of internal reports and metrics versus external inputs. This suggests that, while operational information flows to the board are strong, they may be lacking broader context – e.g. the implications for economic stability and business continuity of simultaneously breaching six (possibly seven) of nine planetary boundaries.
While it's heartening to see over half of respondents reporting that their organisations have carried out a double materiality assessment of sustainability-related impacts, risks and opportunities, there are also signs that this is still seen as a reporting compliance exercise, rather than a vital input into overall strategy and governance. For example, while resulting insights have most commonly influenced changes to targets and risk management, they’ve done far less to affect overall business strategy, choice of suppliers or raw materials, or product and service innovation.
Download the full report
So, what should boards be doing?
As key regulations are delayed, and as companies dial back external communications, it's vital that leaders use this breathing space to address the knowledge and governance gaps highlighted above.
Boards cannot afford to ignore that our present course is already precipitating the breakdown of Earth systems, upon which all economic activity depends. Decisions taken now will determine whether businesses have the capacity to lead and benefit from a planned transition, or whether they will ultimately succumb to the costly fallout of an unravelling world.
In our latest 'For the Attention of the Board' briefing, we lay out six practical tips for navigating the crucial years ahead.
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