Why boards must take the lead on sustainability to ensure long-term success

https://arab.news/53w27
Environmental, social and governance considerations have evolved from peripheral corporate concerns to central elements of business strategy. However, in some cases, a significant governance gap persists between commitments to sustainability and accountability at the board level.
Boards that continue to delegate sustainability to operational committees fail to fulfill their fiduciary duty to oversee it effectively. This gap in accountability at the highest levels is increasingly recognized as a key challenge for corporate governance.
A 2023 PwC survey found that 64 percent of directors recognize climate change as a significant business risk, yet only 38 percent report that their boards possess expertise in ESG matters. This gap exists despite growing investor demands for climate accountability.
Corporate sustainability pledges are often ambitious, but they are not always met. Board oversight remains insufficient. According to recent research, 71 percent of institutional investors believe most companies overstate their ESG progress, reflecting a lack of credibility in corporate sustainability governance.
Further illustrating this point, a 2024 study revealed that only 23 percent of S&P 500 companies link executive compensation to ESG metrics, and just 17 percent have a board member with significant ESG expertise. Without proper accountability at the highest levels, sustainability measures risk becoming mere greenwashing.
In response to these challenges, shareholder activism on ESG issues has surged, with climate-related proposals at S&P 500 companies increasing by 88 percent since 2020. Regulatory pressures are also mounting, with the EU’s Corporate Sustainability Reporting Directive and the SEC’s climate disclosure rules reshaping corporate reporting obligations.
As these pressures increase, forward-thinking boards are responding by integrating sustainability into core governance structures. High-performing companies tend to have boards with dedicated sustainability panels, mandate ESG literacy as a qualification, and incorporate climate considerations into enterprise risk-management frameworks.
Research shows that companies with strong ESG practices outperform financially, with top ESG performers posting annual shareholder returns 10 percent higher than bottom performers. This performance premium underscores that the role of sustainability governance extends beyond risk mitigation to creating strategic opportunities.
High-performing companies have boards with dedicated sustainability panels, mandate ESG literacy as a qualification, and incorporate climate considerations into enterprise risk management frameworks.
Majed Al-Qatari
This shift in perspective reveals sustainability as not just a defensive measure, but a driver of business growth.
Unilever’s board-level sustainability leadership, exemplified by its Corporate Responsibility Committee, oversees the company’s Sustainable Living Plan. This governance structure has helped Unilever reduce carbon emissions per unit of production by 56 percent, while maintaining consistent shareholder returns.
Similarly, Orsted, a Danish energy company, has seen its board-driven green transition cut carbon emissions by 87 percent and increase profits by 22 percent annually.
Given these examples, it is clear that sustainability must be viewed as more than just compliance; it must become an engine of innovation and competitive advantage. Companies with board-level sustainability oversight are approximately 2.7 times more likely to drive product innovation with environmental benefits than those without it.
Just as regulatory frameworks following accounting scandals in the early 2000s mandated financial expertise on boards, regulatory bodies should now require ESG competence. This shift is necessary to ensure boards are equipped to navigate the evolving business landscape.
Despite agreeing that financial capital remains the primary tool for meeting business objectives, companies lacking sound sustainability governance can face up to 30 percent higher costs than their more sustainable peers. This is a material financial impact that boards can no longer afford to ignore.
Ultimately, sustainability governance is essential for long-term value creation. In 2024, BlackRock CEO Larry Fink positioned climate risk as investment risk.
Boards that fail to lead on sustainability neglect their fiduciary duty to protect and enhance shareholder value in a rapidly evolving environment marked by environmental and social transformation.
• Majed Al-Qatari is a sustainability leader and ecological engineer experienced in advancing environment, social, governance and sustainability goals.