During this webinar, the Board Leadership Center was joined by Mike Boonen, Head of Sustainability at KPMG in Belgium, who set the scene for today’s conversation about ESG in the boardroom, including a look at the forces driving sustainability and corporate value, sustainability reporting and ESG ratings and considerations for board members. We then welcomed Jean-Louis de Cartier, Chairman of Etex, and Caroline Thijssen, Board Member of Etex and Head of Sustainable and Responsible Development at Retail & Private Banking at BNP Paribas Fortis, who shared their insights into Etex’s sustainability journey. This article is a summary of the key takeaways.
The topic of sustainability is everywhere – or at least it seems to be – including most boardrooms in Belgium and abroad. However, it is not just something you do some of the time – you need to live your values, and they need to be in everything you do. It’s what you should be doing to contribute to the sustainability of our collective future, because no business can succeed in a society that fails.
Yet, the countries that have developed socially and economically have not done so within our planetary bounds, and those which operate within our planetary bounds are still “developing” according to the UN’s Human Development Index.[i] This is the sustainable development gap.
In order to address this gap, the UN set 17 Sustainable Development Goals (SDGs) – clear economic, social and environmental goals – to achieve by 2030. However, no individual company can achieve all of these goals, at once, on their own. Many businesses, therefore, unite to achieve goal 17, Partnerships for Goals, and/or focus on just one or several of the other goals.
KPMG’s Survey of Sustainability Reporting 2020 identified the three most prioritized SDGs – goals 8 (Decent Work and Economic Growth), 12 (Responsible Consumption and Production) and 13 (Climate Action) – and the three least prioritized SDGs – goals 2 (Zero Hunger), 14 (Life Below Water) and 15 (Life on Land).
This leads to the risk of certain goals being left behind. One issue with the SDGs is that they are non-binding; this is something that recent initiatives, such as the European Union’s Green Deal, hopes to address. For companies though, it’s not only the legislation and regulation that matter – there are financial risks to societal and climate change, which are increasing in both likelihood and impact.[ii] Furthermore, there is an increasing expectation, from a growing number of stakeholders – including shareholders, customers, employees, investors, etc. – for companies to operate in a sustainable way.
People look to the board and ask whether we want to focus on sustainability or profitability. We need to express the equation in a different way and say that we want to be a profitable company by being sustainable. It will be positive for the employees, stakeholders, clients, and the growth will follow eventually.
What does this mean for boards?
- Set the strategic direction and identify the topics that matter most to your business and its stakeholders. Boards need to set a sustainability strategy that’s widely supported by stakeholders and aligned to its business purpose. Materiality assessment and stakeholder engagement processes are a key part of this process, and while they can be challenging, they are invaluable for setting your strategic direction.
- Start implementing your strategy. Start developing policies, procedures and a management approach to address each of the individual material topics identified.
- Measure and monitor your performance and progress. Once your strategy is implemented, decide how you will measure your progress and which reporting framework you will use. For example, the Global Reporting Initiative (GRI) originated in 1997 and has been widely adopted worldwide.
There’s no one-size-fits all ESG journey. Your journey needs to start with your business, your purpose, and your stakeholders. The example needs to be set by the Board and embedded within the organization.
We created a CSR committee on the Board because the example comes from above – from the Board. The Board needs to be highly keen on the strategy and they need to be aligned. Then, together with management and with your stakeholders, you can implement your strategy.
What does this look like in practice?
For Etex, their CSR strategy started with their purpose, “Inspiring ways of living” and with their focus on health and safety – particularly considering their past connection with asbestos. From there, they held internal workshops to define their stakeholders – internal, connected (shareholders, users) and external (communities, NGOs) – and the 20 most relevant materiality topics. Then they tested these topics with their stakeholders to create their materiality matrix.
ESG is embedded top-down throughout the organization and every decision takes sustainability into account. Three key milestones helped them implement their strategy:
- The Board recognized the importance of metrics and engaged a rating agency to perform an external sustainability ranking to know where they are, what they do well and where they can progress.
- Their code of conduct is mandatory for all employees and is included in all training programs. In addition, they created a supplier code of conduct. For their top 100 suppliers, they also ask them to receive a rating by Ecovadis.
- In early 2020, they became a signatory to the UN Global Compact supporting the UN Business Principles, covering four main themes: Anticorruption, Human rights, Labor standards and Environment.
At one point, we came to the realization that inside the organization, our initiatives at Board level were not being recognized. And that’s a problem – you can have fantastic ideas at Board level, but you need to bring them into the organization. So we looked at this. Now, every decision we take, every discussion we have – from investments to learning and development – has a CSR aspect. Today, CSR is clearly understood throughout the business, not only as a cost item but from a profit aspect, as well.
To monitor their performance, the Board created a CSR Committee (one of four formal Board Committees), which meets four times per year and reports to the Board on all important sustainability topics, including materiality metrics, SDG selection process, ESG rating, sustainability reporting, social and environmental projects, as well as sustainability and environmental risks.
In terms of monitoring, we are also looking to include it in Etex’s remuneration philosophy. For us, it’s important that our remuneration policy really translates our deepest ambitions and convictions regarding our strategy and sustainability.
As a non-listed company, they are not obliged to publish a sustainability report. However, they decided, with their shareholders, to behave as if they were on the stock market and include sustainability reporting in their annual report. Their goal is to be more and more transparent, and each year they aim to improve their reporting. One important part of reporting is defining consistent KPIs across the group, which can be beneficial for benchmarking, and eventually for remuneration.
The impact of living the strategy from the top-down and throughout the organization goes beyond KPIs and reporting. It impacts the company culture and employee engagement, has a positive impact on finding talent, and brings people together. For example, during the pandemic, Etex guaranteed three months’ salary to their employees all over the world, thereby creating a sense of belonging.
We will get out of this pandemic, and we will be a much stronger organization.
Key questions for C-levels and Boards to consider:
- What processes do we have for the identification of ESG opportunities and impending risks?
- Do we comprehensively understand the material ESG risk and parameters?
- Do we have the ability to integrate the identified ESG parameters into our vision, goals and metrics?
- Does the Board have the skills and necessary information to guide management on the way forward?
- Does our ESG criteria also cover governance matters such as board diversity, board performance and ethics, apart from topics like climate change, data security, labor practices, etc.?
- How can we increase our engagement on ESG matters, both internally and externally?
- How can we effectively communicate the company’s ESG story to all stakeholders?
- What is the best way for us, to align and increase our internal and external engagement on ESG?
- How could ESG support our COVID-19 recovery and help create a more resilient and sustainable business?
- Can we embed ESG into our debt financing and will it lower our cost of funding?
- What is our major challenge in accelerating our ESG strategy program?
- Do we have the appropriate internal capability (tools and technology) and expertise to deal with ESG issues?
- How do we engage and ensure buy-in from suppliers for our ESG strategy?
- How embedded is ESG in our current investment process?
- How is our brand communicating our commitments to ESG & Sustainability?
- How do we get our entire workforce aligned to our ESG strategy? What are the key barriers?
- What type of assurance would improve our line of sight into our organization’s ESG practices?
- Are we making the most of new tax incentives related to ESG?
Also see our Boardroom Questions on Sustainable Development and Human Rights.
The Board Leadership Center offers non-executive and executive board members and those working closely with them (including CROs and Heads of Internal Audit) a place within a community of board-level peers. It also offers access to topical seminars and more technical Board Academy sessions, invaluable resources, thought leadership and lively and engaging networking opportunities.