IN Part 1 of this article, I mooted the case for a holistic and integrated shift to sustainability, with a large portion on why stepping up an organisation’s commitment to a more sustainable way of doing business is a board-level concern.
Part 2 of this article is a continuation of that discussion, with a specific focus on how and what it means to integrate sustainability in business, from a top-down, holistic and long-term perspective.
Integrating sustainability in business – top down, holistic and long-term strategy
Embracing sustainability has become a reality for corporations and business enterprises around the world. It can no longer be approached as a separate agenda or dealt with merely by one group of experts sitting in a detached specialist department.
A truly sustainable organisation is measured by the particular organisation’s capacity to measure up to three factors, which are:
Its responsibility to the environment
Impact to the society at large
Its adherence to corporate governance
The most widely used definition of sustainability is that developed by the Brundtland Report of the World Commission on Environment and Development, which defines sustainability as “Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
Since 2015 in Malaysia, the regulator of the local bourse, Bursa Malaysia requires all listed companies to disclose a narrative statement of its best practices in sustainability.
For sustainability to become a competitive advantage, it needs firstly to be present in the boardroom. sustainability must be discussed as a strategy and effectively transformed into concrete actions to be implemented and followed up by Management. The strategies on EES need to be holistically integrated into a company’s business ethos and activities.
What can boards do to stay ahead?
Directors are in a unique position to embed sustainability into corporate purpose and strategy.
1. Build Sustainability-Competent Boards:
As a start it is important for all board members to be sustainability-competent. Effective directors are the foundation of an effective board. Companies need to first build a sustainability-competent board, not just a board with one or two sustainability-proficient directors. sustainability–competent boards will be able to tackle material risks as one cohesive body, with the right perspectives and priorities. This creates an effective, healthy environment for the right questions to be asked, to support or challenge management, and most importantly make informed decisions.
2. Changing board mindset focus from short-term to long-term financial performance
Boards need to articulate a vision for what sustainability means for their organisations and how its organisation would respond to sustainability-related risks and opportunities. Top-down, organisations need to understand and resonate with this mindset to effectively play their roles in ensuring that sustainability principles are integrated across all areas of the organisation and business.
This would require a complete analysis of the organisation, encompassing:
i. Assessing Materiality
• Identify and define sustainability issues, i.e. EES risks and opportunities, material to the business, i.e. potential to incur significant impact on business operations, performance and long-term goals.
ii. Engaging Stakeholders
• Identify and prioritise stakeholders, internal and external, with the most influence and potential to impact, indirectly and directly, on the organisation’s operations and performance. Engage stakeholders to identify, capture and address their concerns.
iii. Setting Goals and Commitments
• Focused initiatives on reducing risks and capturing opportunities around the identified EES concerns.
iv. Establishing Sustainability Policies and Practices
• EES policies and practices need to be pervasive. It also has to clearly guide the entire organisation and its people in order to achieve and maintain the company’s sustainability goals and agenda.
3. Integrating Sustainability Principles into Corporate Strategy:
It is incumbent upon the board to factor those material EES sustainability risks, both financial and non-financial, and ensure the necessary considerations are integrated holistically in the company’s strategy, instead of running compartmentalised sustainability programmes. This starts with setting the right tone from the top and uniformly assimilated throughout the organisation, and then, emanating outwards through the external supply-chain.
The recent launch of the world’s first formally constituted, country-level Climate Governance Initiative (CGI) chapter in Malaysia in May this year signalled to the world the country’s commitment to driving Sustainability principles in Corporate Malaysia.
Initiated by a group of Non-Executive Directors (NEDs) who sit on the boards of various Bursa Malaysia-listed companies, the call to action is for companies and directors to place greater emphasis on integrating climate change priorities in the business agenda; the specific encouragement is for NEDs to acquire the practical skills needed as long-term stewards of the business to help steer their companies through an effective climate transition strategy, taking into account the need for financial stability, increased resilience and sustainability.
4. Board Accountability and Oversight:
Boards are expected to provide oversight for corporate sustainable strategies and long-term performance, which means integrating Sustainability considerations into board discussions:
i. Continuous evaluation and review of sustainability risks need to be in place, which can be undertaken by a risk committee appointed by the board.
ii. At the operational level, bringing in a sustainability specialist in the initial period to assist the board in providing a guide for the framework and principles in the development process will help ensure that the right metrics are in place. Feedback and buy-in from internal stakeholders are also key in the success of the implementation of sustainability policies and measures across the organisation.
iii. Importantly, there needs to be accountability across the board and management. From the Chairman, CEO to heads of business and operational units, the consistency and alignment, is necessary to ensure sustainability goals are achieved across all aspects of the business.
5. Sustainability Reporting
Investors and Regulators want boards to be more proactive in informing them how the company identifies, measures and integrates EES factors into corporate strategies to mitigate risks and maximise business opportunities.
Since 2016 companies listed on Bursa Malaysia are required to disclose a narrative statement of their material EES risks and opportunities in their annual reports.
Compliance with the initiative may sound easy to some companies, but it would in fact require a lot of thinking, internal alignment and possible organisational changes to reflect full value and intent of sustainability. The focus on materiality, governance and management as suggested by Bursa Malaysia encourages companies to bring the whole organisation, not just the investor relations and Sustainability teams, together and agree how sustainability supports the investment proposition.
It is time for corporate boards to take Sustainability seriously.
Even the most seasoned directors will need to enhance their knowledge and skills on various topics related to the ever-changing business and economic landscape. The negative impacts of EES concerns on company reputation and financial performance ought to compel boards and companies as responsible corporate citizens, to discard their short-term views for long-term financial goals, to enable business longevity and ensure competitive advantage.
And the change must come from the top.
Boards need to drive the change on sustainability not just strategically, but with strong oversight to ensure a holistic integration throughout the company and drive value for the organisation.
To find out more about topics and matters related to boards and directors, do join us at ICDM’s inaugural International Directors Summit 2019 on the 14 and 15 October 2019.
* Michele Kythe Lim is CEO and President of Institute of Corporate Directors Malaysia (ICDM).
** The views and opinions expressed in this article are those of the author(s) and do not necessarily reflect the position of Astro AWANI.
Michele Kythe Lim
Sat Aug 24 2019
Directors are in a unique position to embed sustainability into corporate purpose and strategy.
Astro AWANI's revamped English news website, AWANI International, launches on Oct 21
Astro AWANI's revamped English platform delivers in-depth global news and expert analysis to keep you informed on key developments.
Israeli strikes kill 33 people in Jabalia refugee camp in Gaza, medics say
Residents of Jabalia said Israeli tanks had reached the heart of the camp after pushing through suburbs and residential districts.
Liam Payne's ex-partner calls for media restraint after 'painful' death
Cheryl Tweedy used her statement to urge the media to remember they had a seven-year-old son, Bear, who could read the reports.
Analysts: Indonesia's strong MoF leadership team to boost investor confidence
Sri Mulyani Indrawati as head of Indonesia's Ministry of Finance is expected to instil confidence among investors.
Biden offers both a carrot and a stick to Israel as his term nears an end
Israel has frequently resisted US advice and has caused political difficulties for the Biden administration.
Putin says BRICS will generate most of global economic growth
Russian President Vladimir Putin will host a summit of the group in the city of Kazan on Oct. 22-24.
ISIS Malaysia's perspective of Budget 2025
An excellent rakyat-centric budget under the overarching principle of a caring and humane economy.
Budget 2025: Record increase in STR, SARA aid initiatives
The government will provide a significant boost to the Sumbangan Tunai Rahmah (STR) and Sumbangan Asas Rahmah (SARA) initiatives next year.
Budget 2025: EPF contributions to be made mandatory for foreign workers – PM Anwar
The government plans to make it compulsory for all non-citizen workers to contribute to the Employees Provident Fund (EPF).
What policies to expect from Indonesia's new President Prabowo
Prabowo will be open to foreign investment, his aide has said, such as by offering investors management of airports and sea ports.
Budget 2025: Govt allocates RM470 mil to empower women's participation in PMKS
The Women's Leadership Apprenticeship Program will be intensified as an effort to produce more female corporate personalities.
Israel sends more troops into north Gaza, deepens raid
Residents of Jabalia in northern Gaza said Israeli tanks had reached the heart of the camp, using heavy air and ground fire.
Indonesia ramps up security ahead of Prabowo's inauguration
Prabowo Subianto will be sworn in as Indonesia's president on Sunday with Vice President-elect, Gibran Rakabuming Raka, also taking office.
Immediate allocation of RM150 mil for local authorities, DID to tackle flash floods
Datuk Seri Anwar Ibrahim said this allocation is intended to address the recent flash floods that hit the capital and several major towns.
Budget 2025: Sabah, Sarawak to continue receiving among highest allocations - PM
Sabah and Sarawak continues to be prioritised under Budget 2025, with allocations of RM6.7 billion and RM5.9 billion respectively.
NFOF will be operational in November 2024 with funding of RM1 bil
PM Anwar Ibrahim said NFOF will support venture capital fund managers to invest in startup companies with RM300 million set aside for 2025.
Minimum wage to increase to RM1,700 effective Feb 1, 2025
The Progressive Wage Policy would be fully enforced next year with an allocation of RM200 million, benefiting 50,000 workers.
Bursa Malaysia ends higher on Budget 2025 optimism
The benchmark index, which opened 1.85 points higher at 1,643.29, moved between 1,641.71 and 1,649.31 throughout the trading session.
Five important aspects relating to people’s lives in Budget 2025 - PM
The focus is on driving the MADANI Economy, speeding reforms, cutting red tape, raising wages, and tackling the cost of living.
Economic outlook: Govt plans to leverage, expand existing city transit system
The expansion aims to provide a more efficient and reliable public transportation network, reduce congestion, and improve accessibility.