Posted in GreenBiz
May 9, 2022

Have corporate sustainability advisory panels had consequential impacts?

During the past several decades — and often with great fanfare — a select number of Fortune 500 enterprises have established corporate-level panels of external advisers to provide specific advice on a growing number of sustainability issues.

The exact number of such bodies is not known, but it is not likely to be large. In a 2021 Conference Board evaluation of how companies manage their sustainability activities, only 17 percent of 104 surveyed companies had established such panels.

This evaluation of corporate advisory panels focuses on three principal questions: What major roles have they performed? What impacts have they achieved? And how are they likely to evolve in the future?

1. What key functions do sustainability advisory panels perform?

While the exact purpose can sometimes vary by business sector, corporate sustainability panels have generally undertaken several important roles. They include:

  • Fostering sustainability learning and engagement among C-suite executives. As the professional development of most current senior executives did not emphasize sustainability, they are learning while leading their companies. Knowing they will interact on high-profile issues with sustainability experts with external stature stimulates their knowledge acquisition through internal staff briefings, reading selected publications and exchanging sustainability information with peers from other companies.
  • Identifying the nature and magnitude of sustainability-related risks to the business. This function attracts the engagement of a variety of C-suite executives, including the CEO, chief financial officer, chief innovation officer and business unit leaders. In their formative years, many corporate sustainability panels provided input on company materiality assessments and sustainability reports. As these processes have matured, companies are requesting their panels to evaluate risks associated with global megatrends (particularly climate change and water scarcity), supply chain management and social risks.
  • Broadening the scope of sustainability to increasingly address economic and social issues. While environmental, health and safety issues will always be foundational to any credible sustainability program, the opportunities to integrate economic development, innovation, competitiveness and brand differentiation issues create new ways of strategic thinking. Similarly, the growing momentum that surrounds diversity, equity and inclusion lead directly to new thinking for talent recruitment and retention to strengthen core competitiveness. To an increasing degree, human resources executives are presenting their objectives and initiatives to corporate sustainability panels.
  • Stimulating cross-business-unit integration. In many companies, sustainability initiatives were originally embedded within corporate staff or in individual businesses. The emergence of larger-scale challenges (climate change, meeting expectations from customers) has elevated sustainability to a more strategic conversation that transcends individual business unit boundaries. Advisory panels have served as an external voice encouraging a corporate-wide lens leading to the adoption of goals, metrics and processes that apply consistently across the various brands and functions.

Adaptability in business planning and greater diversity in panel composition and expertise are key factors to success for maintaining vitality and value for their ongoing relationship.

2. What impacts have corporate sustainability panels achieved? 

The answer to this question is invariably company-specific. In reviewing corporate sustainability panels to-date, several kinds of impacts have emerged. They include:

  • Communicating sustainability’s value proposition across the enterprise. In contrast to decades-long conversations about the value of environmental, health and safety programs focused on compliance and risk avoidance, the universe of sustainability topics has expanded to include a broader number of direct business topics, including the measurement and monetization of climate risks to business assets, collaboration opportunities with customers to co-design product solutions, leveraging a company’s commercial products to help solve societal problems, and using sustainability to attract and retain talent.
  • Using sustainability panels as a sounding board for company-wide strategies and initiatives, many of which will ultimately be decided by the board of directors. This pre-governance function can provide senior corporate executives with valuable external perspectives on the technical design of new initiatives, their effectiveness in solving a problem or anticipating public reactions among various stakeholders. Selectively, companies have engaged their panels on such topics as climate goals and timelines (net-zero commitments, for example), water efficiency goals, and the design and implementation of plastic waste reduction commitments. Such discussions often include recommendations on potential collaboration partners in academia, governments, non-governmental organizations and other enterprises.
  • Defining opportunities for corporate leadership. Rich dialogues occur about the opportunities for such leadership. Several years ago, when Trane Technologies was developing its corporate climate strategy, the idea of developing a 1 gigaton carbon reduction plan by 2030 for Trane and its supply chain and business partners was evaluated and discussed by its external Sustainability Advisory Council. In 2020, IBM (which has no corporate sustainability panel) convened about 25 external stakeholders to examine how rapidly evolving large databases and digital technologies (a core IBM business and marketing asset) could be applied for environmental decision-making.
  • Providing useful ballast and continuity to corporate sustainability programs during periods of significant challenge. These include the recent pandemic, changes derived from mergers, acquisitions and spin-offs, and transitions in corporate leadership. An established, continuous relationship with the external panel can support and supplement the internal “voice” of sustainability leaders within the company during turbulent times.

The rapid pace of change across civil society and marketplaces has major implications for how companies organize their relationships with stakeholders, including external advisory panels.

3. How do corporate sustainability panels need to evolve in the future?

The rapid pace of change across civil society and marketplaces has major implications for how companies organize their relationships with stakeholders, including external advisory panels.

Many sustainability issues have risen to a place of great prominence in less than a decade, and both C-suite leaders and stakeholders are refocusing on how best to address them. As a result, corporate advisory panels will be called upon to offer responses to several major issues in the future. They include:

  • Recruiting panel members with greater expertise to advise on company strategy, data and engagement on environment, social and governance (ESG) issues. Most advisory panel members lack meaningful ESG expertise and experience and are not as well-equipped to advise companies on such issues as financial performance metrics and reporting, or investor education and expectations. As the pace of investor queries of top management about ESG performance has accelerated — and given the tendency of many financial firms to devise their own sustainability data requests and scorecards — sage, strategic advice from advisory panels is urgently needed.
  • Integrating internal efforts to improve diversity, equity and inclusion (DEI) with external challenges on environmental and social justice. While a number of Fortune 500 companies have broadened the composition of their boards and C-suites, they have not consistently applied DEI commitments throughout their organizations. At the same time, corporations have been noticeably and consistently reticent about engaging with local, regional and national stakeholders on specific environmental and social justice issues such as human rights and labor practices. Such reticence stems from concerns over legal risks, cultural lag or, in specific instances, racial insensitivity in acknowledging the disparity in pollution risks and other forms of injustice. The lack of environmental justice plans and strategies exposes companies to greater challenges to their operating permits, future site expansion and lawsuits from communities. External advisory panels can assist companies to incorporate DEI-environmental justice in their business strategies but they, too, need to embody greater diversity, knowledge and relationships within their own ranks.
  • Reconciling sustainability commitments with company advocacy. This is a great fault line within all corporations. External advisory panels, as a whole, have been notably unsuccessful in robustly challenging C-suites to end the double talk between their public pledges and their less-than-transparent efforts to lobby governments through their own staffs and campaign contributions and the efforts of their trade associations. Compounding this challenge has been an absence of direct knowledge among advisory panel members of how public relations and lobbying actually gets conducted.
  • Navigating disruption. The slate of issues challenging business plans and their execution — domestic political insurrection, a global pandemic, a major war on the European continent, the need to engage corporate values with changing societal expectations — will require wise counsel and judgment on many levels. As the sphere of issues contained within the sustainability agenda continue to expand, major companies’ reliance upon corporate advisory panels will likely grow in importance and consequence.

What began several decades ago as an effort to seek external advice for improving corporate environmental performance has evolved into a pre-governance role for external advisory panels to counsel corporations on some of their most impactful business challenges. Adaptability in business planning and greater diversity in panel composition and expertise are key factors to success for maintaining vitality and value for their ongoing relationship.

Note: The author is a member of corporate sustainability panels for The Dow Chemical Company and Trane Technologies. He writes in a personal capacity, and his views do not represent those of either company.

May 9, 2022 at 03:15PM

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