The spotlight on the role of the board in driving sustainability is intensifying. That was one of the main takeaways from last week’s panel I led at the NACD’s Christianna Wood, director at H&R Block, and Seth Goldman, founder of Honest Tea.
A variety of trends are prompting directors to take on more responsibility for ensuring their companies are addressing sustainability issues like climate change. In particular, our panel pointed to the growing number of investors focusing on these issues through shareholder resolutions, corporate engagement and research. Just this month, a large group of investors met with Congressional leaders and the SEC calling for stronger corporate disclosure of material climate risks.
Wood highlighted actions that the country’s largest pension fund, the California Public Employees Retirement System, is taking as an investor. By mapping out the carbon footprint of the 10,000 companies in its $300 billion investment portfolio, it identified that just 80 are responsible for half of the portfolio’s total greenhouse gas emissions. With this information in hand, CalPERS is pushing those companies to adopt long-term strategies for managing and adapting to climate-related risks. “More investors consider themselves asset holders, not shareholders,” Wood noted.
There was a strong consensus that sustainability challenges impact corporate value, whether directly or indirectly, a fact that’s borne out by a number of academic studies. That led to a discussion about how these issues should be addressed by corporate boards. We all agreed that as fiduciaries responsible for ensuring that companies not only survive, but thrive, directors have a responsibility to assess whether a company is making the right choices.
We also discussed the need for corporate directors to drive sustainability discussions in informed ways. ‘Climate competence’ is a hot issue in the investor and corporate space right now, and large investors like CalPERS and CalSTRS have recently updated their governance principles by calling on their portfolio companies to recruit directors with specific climate change expertise. “Every board will need to display some level of sustainability (expertise),” Wood said, adding that the type of sustainability skills needed depends on the industry the company is in.
But tackling sustainability isn’t simply about managing risks—it’s about creating new opportunities. Goldman highlighted how activists and social trends can help boards and management identify new business opportunities. His company, Honest Tea, tackled the concerns that the medical professions was highlighting on obesity and labor activists were raising around fair trade and labor policies in developing countries. Now, with Beyond Meat, his high-profile startup that produces plant-based burgers, chicken and meatballs and that’s garnered the attention of the likes of Bill Gates, he’s responding to social trends again.
A final note that also resonated with the audience was embracing “long-termism.” Goldman explained that, in balancing reaching the long-term future he wanted to create for his company with the short-term thinking of building up sales, it was crucial to develop clear guardrails of what the brand was about. “That gave us structure to what we were doing and made it clear how we were going to grow,” said Goldman. Adding more sugar to Honest Tea, for instance, might have helped with getting on the shelves of more sales outlets early on, but it would have diluted the brand. Boards have a role to play in helping define and maintain such guardrails for their companies.