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How Boards Can Steer Companies to “Build Back Better”

The momentum for sustainability is strong despite misgivings over current financial strains. Few businesses can afford to ignore it.

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When the history of the Covid-19 pandemic is written, it will no doubt note how, in one fell swoop, the bug accomplished something humanity had long struggled to do: slash global carbon emissions by an expected record of 7 percent in a single year.

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The planet we live on remains very much in the grip of climate change, and the pandemic has only underscored the destructive consequences of our “war on nature”.  

As the novel coronavirus swept the globe last year, the European Union, China, Japan and the United Kingdom announced ambitious plans to cut emissions over the next decades. Developments on the ESG (environment, social and governance) front have been especially robust in Europe. The EU Commission is holding a public consultation on sustainable corporate governance.

Switzerland has held a referendum, which was rejected, on whether to impose new standards on Swiss businesses’ activities abroad. In the UK, the government plans to mandate financial disclosures by 2025, following the recommendations of the Task Force on Climate-related Financial Disclosures.     

But there appears to be a disconnect on climate action among countries. The G20 – which accounts for two-thirds of the world’s population – is spending 50 percent more in stimulus money in sectors linked to fossil fuels than low-carbon ones. Our ongoing research, published in Management & Business Review, indicates that the world of business may likewise be divided on sustainability issues.

We had previously identified five archetypes of board behaviour, from “deniers” to “true believers”, based on in-depth interviews with 25 experienced Euro­pean non-executive directors repre­senting 50 well-known companies. From a recent check-in with some of the interviewees, we find that the pandemic may have widened the gulf between those resistant to and those supportive of sustainable practices.

As one director told us: “We are fighting to survive; sustainability is not on our priority list.” Meanwhile, another said, “Covid-19 shows us that ESG consid­erations are increasingly material to our ability to create value sustain­ably.”

Six actions for boards

Leaders may be split on sustainability, but momentum to “build back better” is growing in society at large as political and financial imperatives align. According to a Boston Consulting Group study, 50 percent of US investors think it is important for companies to continue their ESG agendas and priorities while navigating the crisis, even at the expense of some earnings. Big corporate names – from Microsoft, Starbucks to Shell and BNP Paribas – have announced plans to cut emissions or improve the environment in other ways.

More broadly, there is a growing realisation in many sectors of society that one lesson we must learn from Covid-19 is that predictable but inadequately addressed high impact events, like pandemics and climate change, can exact huge costs.

Business has its part to play and boards, in turn, have an important role in steering companies safely through climate change and other systemic externalities. For…

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INSEAD Knowledge is the expert opinion and management insights portal of INSEAD, The Business School for the World. Knowledge showcases the latest business thinking and views from award-winning faculty and global contributors

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