It is clearer than ever before that sustainability practices can affect corporate value. That was the main thread of a panel that I led at the National Association of Corporate Directors’ 2016 Global Board Leaders’ Summit in Washington, D.C. My co-panelists Christianna Wood, director at H&R Block, and Seth Goldman, founder of Honest Tea, and I discussed the potential risks and opportunities that environmental and social issues pose to companies.

Sustainability is a broad term, and not every environmental or social issue belongs on the board agenda. But when an environmental or social issue has the potential to affect corporate revenue and earnings in the short and long term, sustainability absolutely should be on the table.

At the end of the day, it all comes down to materiality, and this is where corporate directors have a critical role to play.

Materiality is about determining a company’s priorities. As fiduciaries responsible for overseeing a company so that it not only survives but also thrives in the long term, directors have a responsibility to assess whether a company is making the right choices.

But the much harder question is: When does an environmental or social issue rise to the level of being material?

Here are some steps directors can take to drive discussions about whether sustainability issues are material to the companies that they oversee.

1) Understand how sustainability is being integrated into your company’s efforts as a way to identify material issues.

There are a few ways to do this. Directors could point management towards the Sustainability Accounting Standards Board’s Company Implementation Guide, which provides a great starting point for companies to assess whether certain sustainability factors could be considered material for the purposes of the company’s financial filings. Directors could also integrate themselves more meaningfully into corporate efforts aimed at identifying material sustainability issues. They could provide perspectives on the connections between sustainability factors, corporate strategy, risk, and revenue.

2) Include key issues being raised by critical stakeholders in the materiality exercise.

While a broader range of stakeholders is raising a variety of issues these days, the financial community is a particularly critical constituency to direct attention towards. As we discussed in our panel, the U.S. investor community is starting to make the connections between sustainability and the financial value of companies in their portfolios. During the 2016 proxy season, close to 400 shareholder resolutions on climate change and other sustainability issues were filed. Large investors including CalPERS, CalSTRS and State Street Global Advisors are asking their portfolio companies to put directors with climate expertise on their boards.

In addition to tracking broad sustainability trends that investors are paying attention to, prudent directors could consider opportunities to engage directly with key shareholders to get a sense of issues specific to the company and the industry. Directors could also track and engage with the broader activist and advocacy community as a risk management exercise.

3) Weigh in on the time frame over which issues are considered to be material.

Since the board in particular is responsible for long-term corporate performance, directors play an important role in examining whether their company’s materiality process focuses on considering issues over the long or short term.

Overall, momentum is building to adopt a more long-term view to encourage companies and boards to think more broadly about sustainability and materiality. The recently released Commonsense Corporate Governance Principles, which are backed by major U.S. companies including JPMorgan Chase & Co., Berkshire Hathaway, and Blackrock, support the move to long-term thinking. And more companies including Unilever, Coca Cola, and National Grid are moving away from the practice of issuing quarterly guidance specifically to encourage investors and other stakeholders to adopt long-term thinking.

4) Disclose details on what you consider to be your company’s material priorities.

Noting that determinations of materiality depend on whom the company considers to be its most significant stakeholders, governance experts are starting to call on corporate boards to release a statement noting critical audiences that the company is oriented towards and issues that the corporation is prioritizing. Companies like the Dutch insurance company Aegon have started to issue such statements.

The process of helping to identify the right issues is just a first step in a director’s responsibility on materiality. Directors have an important role to play in ensuring that material issues, when identified are integrated into board deliberations on strategy, risk, revenue and accountability systems. However, getting to the right issues lays an important foundation for the company and its key stakeholders to build on.

Veena Ramani also recently authored the report View From the Top: How Corporate Boards Engage on Sustainability Performance.

Read the post at National Association of Corporate Directors

Meet The Experts

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Veena Ramani

Program Director, Capital Markets Systems

Veena Ramani is a Program Director leading Ceres’ Capital Market Systems program, which consolidates Ceres’ work on critical market levers that will help scale the transition to sustainable capital markets. As a part of this, Veena leads Ceres’ work on governance for sustainability, which focuses on systems and processes that companies should put in place at the corporate board level to allow for “effective” board sustainability oversight. She also oversees Ceres work on sustainability disclosure.

In Oct 2015, Veena authored the report, "View from the top: How corporate boards can engage on sustainability performance."

From 2006 to 2015, Veena managed the relationships with a wide portfolio of Ceres network companies as a part of the Ceres Corporate Program, including the financial services sector and the electric power sector. As a part of this, Veena worked with senior company management and boards on opportunities to integrate sustainability into their business structures and decision making, including policy and program development, disclosures and stakeholder engagement processes.

Prior to Ceres, Veena worked as a Management Consultant with CDM, an environmental consulting firm and focused on providing a variety of sustainability services to clients in the public and private sectors. Prior to that, she spent three years with Integrative Strategies Forum, a Washington DC based NGO, working on developing national and international policy solutions on sustainable development, building consensus and coalitions among civil society groups on these issues and lobbying government representatives. Veena has also practiced law in India.

Veena has an LL.M (Masters in Law) degree from Washington University in St. Louis and a B.A. LL. B (Hons) degree from National Law School from India University, Bangalore.