Role of Boards and Governance with Christine Diamente

Transcription

David Stearns:
Welcome to BSR Insights. I'm your host, David Stearns. We're joined today by Christine Diamente, managing director of BSR's Business Transformation team, who helps companies to manage sustainability through their business and across their supply chains, and to develop resilient business strategies that leverage insights from BSR's Sustainable Futures Lab. It's great to have you with us today, Christine.

Christine Diamente:
Hello, David. And a warm hello to everyone who's listening, delighted to be here with you.

David Stearns:
So we're very excited to talk to you about these recent changes in the reporting landscape. But before we dive in deep, I wanted to ask you just really quickly, what's exciting to you about this moment? And when you talk to companies, what are you sort of hearing from them and what are you telling them about why they should be feeling particularly enthusiastic about these changes?

Christine Diamente:
That's a fantastic question, David. There are a lot of things that excite me and that give me a sense of optimism. I mean, on the one hand, we're in a world of deep disruption and a lot of disturbing things are happening around the world on the macro political front. But on the other hand, as a former practitioner, as a former corporate sustainability officer, and now working with BSR and enabling our members across various sectors to embed sustainability into their businesses, now is the moment. It's the moment when companies are acting. It's the moment when companies are understanding rising stakeholder expectations to really embed this as part of their business, as part of their business models and long-term value. So that gives me a sense of optimism and a sense of hope because there's a call for action, a call for leadership, and a call for companies to really create impact for the long-term, not just short-term shifts.

David Stearns:
Well, it sounds like there's a lot for companies to really feel excited about. And I'd like to dive a little bit deeper, specifically with you, on the topic of the role of boards and governance in this moment. Obviously with this new suite of global regulations and disclosure requirements mandating action and more disclosure, this is a time of real change. And boards of directors are facing a wide range of sustainability issues to oversee and much more complex questions that they need to address. One thing we'd love to hear from you, Christine, is what specific new skills do boards need to have in order to navigate their new responsibilities in this new era?

Christine Diamente:
As I mentioned earlier, we are in this age of rising stakeholder expectations. The expectations are coming from a variety of different sectors. There are employees, first of all, that expect far more on the company's leadership, both the C-suite and boards, there are customers, there are suppliers, there are governments, there are regulators, and particularly regulatory environment investors, and also communities. And in the new regulatory framework, particularly in Europe with the Corporate Sustainability Reporting Directive, the CSRD, or the Corporate Sustainability Due Diligence Directive, or even at the global level with the ISSB, there's a real shift in expectations on boards, their accountabilities, and their duty of care. So they are in the spotlight for a new type of active governance role to oversee sustainability tied to the company's strategy, business model, and long-term value. So what are the skills that are required from boards? If I start off from the regulatory requirements themselves, and I'll start with the most onerous requirements, which are the CSRD in Europe and the CSDDD.

The first thing I want to make clear is it's more than just climate. Europe has a holistic approach to this. So sustainability is climate, environment, nature, social impact, human rights, as well as governance. And the requirements from boards range from oversight, how they're looking at different material sustainability issues such as climate or human rights or living wage or employee safety, that they have the responsibilities outlined and disclosed in mandates. What are the committees, the structures? How often they meet and what they discuss, the frequency of engagement, their expertise and knowledge. How are they upskilling on this? How are they understanding what is climate and the implications of climate risks on scope one, two, and three for the company and across the value chain, but also what are the opportunities for impact in the company? So they have to be able to explain how they're continuously upskilling on these different areas themselves, and also through external support and resources. They need to also consider what are the risks and opportunities in the strategy. They're going to have to disclose their renumeration and how it is tied to sustainability performance.

And finally, they're going to have to sign off on the company's sustainability reporting. And increasingly with the CSRD in Europe, sustainability reporting and financial reporting or corporate reporting are now on the same level in terms of rigor, verification, robustness in the materiality, looking at both risks, impact, and opportunity, and finally disclosure and sign-off. So it is a shift and board directors are in the spotlight. At BSR, just in the last year alone, we've seen an exponential rise in the number of members reaching out to us from boards to work with them, to upskill them on these issues, to understand what the emerging trends are, what are the shifts that they have to anticipate, what are the topics that they have to have on their radar, and also to do a deep dive to help them prepare for these elements and how they relate to the company strategy.

David Stearns:
So clearly it sounds like the expectations of boards and CEOs, anyone involved in the governance of a company, have increased exponentially from everything you've said. And you've talked about how some of the companies have already been coming to us with some of these questions. What platforms or opportunities exist for them to engage in this? I mean, this sounds like a pretty significant upskilling that has to happen in fairly short order. Would that be fair?

Christine Diamente:
I think it is very significant upskilling. I think it's very significant in terms of the exposure, the responsibility, the accountability. As I said, that role has completely shifted. And at BSR, we are seeing a rise in both board members from publicly listed companies as well as private companies, so it affects both. And increasingly, medium-sized companies as well as large multinational companies headquartered from around the world. So it's not just European companies that are impacted by this, but also American companies or Asian companies who have significant operations in Europe or who are also anticipating requests from their customers, their employees, and their entire stakeholder base. So what kind of requests are we getting? I think the first thing that I want to say is for any type of board or leadership engagement there's nothing, at least from a BSR perspective, that is off the shelf. Every single engagement is bespoke and really tailored to the specific company needs.

And they range from individual 15 minute briefings to individual board members to quickly upskill them on key areas such as understanding the CSRD, the requirements and their new responsibilities, to one-hour engagements on one material issue, for example, nature. What is happening with nature? How is this evolving and what are the potential impacts on the company? To full-day workshops with both the board and the leadership to first start off to say, "Right, what are the basics in terms of the terms and vocabulary that you need to understand. Now let's get into some scenarios." We find that scenarios are a very, very good tool for board directors and leaders actually to roll up their sleeves and understand the implications across different scenarios tied to, for example, climate, 1.5 to 2.5 degrees.

Then we invite customers to actually give their expectation to the companies and they can hear it live, and then work with them on what is the right strategy. What is the right stakeholder engagement, what is your roadmap for next steps? And also a reminder to everyone, it's a journey. Everybody's rushing to the front line right now and saying, "Okay, I need my one-hour board training." But that's the start. It has to be part of a continuous program of frequency so that board members and leadership are continuously learning and anticipating the risks and the opportunities on the company's strategy, what is material, their business model, and hopefully in the overall quest of building resilience in long-term value at a time of deep, deep disruption and also rising expectations.

David Stearns:
So that's a really great segue to where I was hoping to take the conversation next. And we've been talking up till this point about how boards and companies can be prepared to navigate this complex new environment of regulation and disclosure requirements, but all of those are really in service to a larger effort. It's not just about ticking the boxes and meeting your compliance requirements, but it's really about achieving a just and sustainable world, and that's where your work in business transformation comes in. I'm wondering if you could help to unpack, what do you mean by business transformation specifically and what hurdles and opportunities exist for corporate leaders on that?

Christine Diamente:
That's another excellent question, and perhaps to make the link between the last question and this one, business transformation today, what has fundamentally shifted is there is a call for a new type of leadership. And leadership happens at all parts of the company. It's not just top-down. I think today it's as much top-down as it is bottom-up as well as inside out and outside in. So while it's easy for me to spotlight and call out the duties of boards and CEOs, I think fundamentally today as businesses transform, leadership needs to happen at every part of the company because sustainability now is integrated across the company. So when we talk about business transformation, we're talking about all the elements to help a company transform for long-term value at a time of deep, deep disruption, and heightened responsibility and accountability to act in today's world to create a just and sustainable world.

And this includes understanding your business landscape, understanding what you're navigating in. What are the risks, what are the opportunities in terms of your peer, your industry, your sector? It means understanding your ambition. How ambitious do you want to be? Do you want to continue just managing ad hoc risk or do you actually want to grow into opportunity and innovation? It includes setting the right strategy. It starts off in most cases with a materiality analysis, and in Europe, increasingly a double materiality analysis. So understanding the company's financial enterprise risk value, and this juxtaposed against their impact on society in the environment. To have a holistic view of what their priorities are and where they can have most impact from a risk, but also an opportunity perspective. It means setting the roadmap, the targets, the governance at the chief sustainability officer level, across the C-suite and key functions at the board level, but also in terms of how you engage stakeholders who play a key role of this.

It also means building resilience for the future. We fundamentally believe at BSR that companies are navigating this disruptive environment and you no longer can have just a linear strategy. You need to have agility. And the best way of doing this is anticipating multiple potential futures, allocating the right resources and building that resilience so that when you hit a disruption, when you hit a shift, you're able to pivot for the long-term. It also means understanding ESG disclosure requirements. It's more than just compliance. It's more than just to tick the box. It is a game changer on how the company sees their strategy for competitive advantage as well as the impacts on society and the environment.

And finally, all this comes together in hopefully one beautiful strategy that really positions the company to know what are their impacts on society and the environment outwards and inwards. What is their enterprise value and how are they building for the long-term versus just reacting to the short-term? So this all calls for a different type of leadership. It calls for awareness at all levels of the organization and it also calls for cross functionality. Sustainability is no longer just the role of the chief sustainability officer. It is really moving towards finance, towards audit, towards legal, towards supply chain, as well as individual employees who today want to feel that they are having a purpose in responding and impacting change on today's major challenges.

David Stearns:
So a few times now, you have referenced the need to think longer term, that this is not just a short-term exercise, you need to have a longer time horizon. I know we do a lot of work around scenario planning, looking at emerging issues. Can you talk a little bit about how you have worked with companies on scenario planning, how that's benefited them, and maybe any anecdotes that you have to share about maybe some lessons learned as companies go through a scenario planning exercise?

Christine Diamente:
Well, scenario planning, thank you for asking that, David, is increasingly becoming a tool and a mechanism used by organizations, as I said, to anticipate resilience. Certainly scenario planning in the financial world is nothing new. It's been happening for a long time, and increasingly in the climate world, whether it's through the TCFD, companies are doing it. Now with the new regulatory requirements in Europe and around the world, really, scenario planning is becoming part of what a company's expected to do and to disclose. And it's a great mechanism, as I said, for companies to be able able to anticipate disruption.

And climate is the number one issue that boards are reaching out to us and asking us for support on with the regulatory requirements, fast being in number two, and nature and human rights being number three, four, if I can go down the list. Having 90 minutes with your leadership, being able to look at three different scenarios, how these are going to impact your sector, how these are going to impact your company. And being able to play out what are the opportunities, the innovation, the resources, and the risks to mitigate is a well-worth exercise.

David Stearns:
Thank you for that. And now I'm going to ask you to engage in a little bit of live scenario planning. Maybe it's more of identification of emerging issues. What do you see coming down the line on this topic in the next 5, 10, 15 years? What should companies be anticipating, not just in the realm of the evolving reporting and disclosure landscape, but on the topic of business transformation, just and sustainable business more broadly? What do you see coming down the line?

Christine Diamente:
What's coming next around the corner? More disclosure, probably more requirements, increased stakeholder expectations for action and impact. And as one young climate activist said to me just a few months ago, "You know, while we want a sustainable future, we also want a livable present." And so that takes thinking of the short-term and the long-term all at once.

David Stearns:
Well, I think you've stuck the landing, Christine. I think that's a fantastic spot to stop. I want to thank you for joining us. Once again, we've been joined by Christine Diamente, who leads BSR's work in business transformation. So thank you very much, Christine. We look forward to chatting with you again.

Christine Diamente:
Thank you.

David Stearns:
Thanks for listening. For more in-depth insights and guidance from BSR, please check out our website at bsr.org and be sure to follow us on LinkedIn.