Recent research from the INSEAD Business School found that confidence in sustainability governance had grown significantly year-on-year. Its annual survey of directors and executives from around the world found that significantly more respondents were confident in their organisation’s understanding of the effects of sustainability than last year. 

While its 2023 survey had found that 25% of directors lacked confidence in their organisation’s understanding of how sustainability would impact value creation, in 2024 that figure stands at just 9% of the 444 respondents. 

More than one-third of respondents (37%) in 2023 said their organisation lacked the capability to scan for weak signals of future sustainability shocks. In 2024, only 24% said the same. Meanwhile, 46% of directors said their organisation lacked a plan to turn sustainability shocks into competitive advantage in 2023. That figure fell to 27% in 2024. 

The report concluded that these improvements were likely down to efforts to enhance board expertise. Almost three-quarters of respondents (74%) indicated that sustainability was now a formal part of their board’s competency matrix. 

The issue of how best to consider sustainability issues at board level is one of much debate, including whether a sustainability committee is a useful approach. 

INSEAD: mix and match models

In 2022, INSEAD’s Corporate Governance Centre published a report, Designing Sustainability Governance: board structures and practices for better ESG performance, which concluded that setting up a sustainability committee is not the right approach for every organisation.

The report recommends that a combined model of existing board committees feeding into the full board might be the best route to the ideal – a full board integration of sustainability matters. It outlines six structures (models) and six supplementary corporate governance practices (plug-ins) that boards can use to integrate environmental, social and governance (ESG) considerations into business strategy.

Making use of plug-ins, such as seeking advice from external experts, can help along the way, the report said. The reasoning was:

• More work by committees gives the board more time for strategic reflection.
• ESG affects all aspects of business. By distributing sustainability to different committees, you take it to the heart of discussions about the most important aspects of your business. 
• Ultimate decisions and responsibilities remain with the full board, which keeps all directors engaged. At the same time, broad strategic reflection at board level is linked to specific operational insights from the different committees and individual directors. 
• A board that doesn’t yet live up to the ideal is constantly learning by getting input from committees to trigger whole-board reflection and vice versa.

INSEAD found that 31% of organisations that participated in the BCG-INSEAD Board ESG Pulse Check March 2022 were already using the ‘fully integrated’ model to embed ESG into corporate governance practices. The Pulse Check captured the thoughts of 122 board members from a range of sectors, 80% of whom were NEDs. Close to half of respondents worked for a publicly listed organisation, with 23% privately owned and 13% owned by private equity firms. 

The ‘fully integrated’ at board level model is the ideal long-term business strategy, but INSEAD acknowledges that for many organisations this is a way off. It encourages a mix and match of models and approaches in the short- to medium-term. The report also encourages a regular review of structures and practices given the fast-moving nature of ESG. 

CGI: sustainability committees ‘a bridge’

In May 2024, the Chartered Governance Institute (CGI), published a report taking a higher-level view of organisations that have implemented sustainability committees. It set out the positives and negatives of creating a sustainability committee, as well as the typical duties and responsibilities. 

Many people the CGI spoke to felt that sustainability committees should act as a ‘bridge’ to more deeply integrated sustainability activity on boards. 

Undeniably, having a dedicated committee at board level sends a strong signal to stakeholders that an organisation is taking sustainability and ESG issues seriously. However, the duties of a sustainability committee can overlap with other committees. For example, the remuneration committee can be responsible for tying bonus incentives to ESG KPIs. Avoiding duplication of work is why working towards fully integrating sustainability into board structures without the need for a standalone committee is the optimal long-term goal. 

The CGI report has a dedicated section to the sustainability skills gap that persists at board level. The report, which was based on a cross-sectoral survey of 130 governance professionals, found a large disparity in what people deemed to be the most valuable sustainability skillset. Of those surveyed, 72% ranked ‘understanding of appropriate ESG data, metrics and goals’ as most important, with just 4% considering ‘financial and strategic acumen’ to be most important. 

Aligned with INSEAD’s conclusions, the CGI notes that committees must ensure regulatory compliance, but must also consider market expectations, which often go far beyond what regulators are mandating. The CGI encourages organisations to include sustainability skills in the board’s skills matrix and skills audit process, as well as including ESG issues in inductions and ongoing training for all directors to avoid over-reliance on a few individuals. 

Anyone considering setting up or retaining a sustainability committee must think carefully about their organisation’s specific needs. The research demonstrates that there is no one single solution to ensuring that boards are best able to tackle sustainability. However, every board needs a fundamental understanding of the issues and to have the right skills in place. Ultimately these issues will need to be addressed by every member of the board, but a sustainability committee may be a useful stepping stone for some organisations in their journey.

Find out more

This is an abridged version of an ICAEW Corporate Governance Community resource. You can read a full analysis of INSEAD and CGI’s research and their recommendations.