Governance for Sustainability
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Sustainability begins with board oversight and commitment and follows through into management systems and processes that integrate sustainability into day-to-day decision-making. It is this chain of accountability stretching from the boardroom to the factory floor or farm that drives home the importance of achieving truly sustainable business performance.
As fiduciaries, corporate board members are obliged to assess risk. The financial impact of climate regulation, the scarcity of water and other resources, and litigation over poor labor practices – all represent examples of risks to businesses.
Corporate scandals and the recent economic crisis have heightened demands for new approaches to governance, particularly in relation to executive compensation and risk management. As sustainability has risen up the corporate, investor and public policy agendas, it has become more fully integrated into these governance expectations. Shareholders, consumers, employees, civil society leaders and policymakers are all demanding greater accountability and transparency, as well as stronger alignment of corporate actions with public policies.
Corporate governance has always been a way to bring new thinking into decision-making at the top of the company. In sustainability terms, a fresh perspective can help identify ways to marry the firm’s core competencies with the world’s sustainability challenges.
The governance expectations that are outlined in this section are complementary to practices traditionally defined as “good corporate governance,” such as executive compensation aligned with long-term value creation, director independence, and appropriately defining the roles and responsibilities of core board committees. The focus in “Governance for Sustainability” is more about establishing and overseeing stronger corporate alignment with the market and society’s expectations, creating business value in the process. Companies that follow this path and embrace strong governance will be better positioned to foresee and adapt to changing economic, social, environmental, and political conditions. The mandate for strategic, long-term governance must flow from the very top of the organization. There is a growing expectation that boards of directors as fiduciaries should be informed leaders on sustainability issues that materially impact corporate performance and plans.