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Next-Generation Sustainable Board Directors
Article
Consider the range of geopolitical shocks businesses have been forced to respond in the first half of 2022: a ground war in Europe, soaring inflation, global energy price shocks, collapsing equity markets, crucial supply chain disruptions, climate change-related natural disasters — all amidst a lingering global pandemic.
The litany of simultaneous global crises has caused some market participants to feel that sustainability should take a back seat to more pressing issues. Mark Carney, the globally recognized UN climate envoy and head of transition investing at Brookfield, conceded that there will need to be continued investment in fossil fuels to facilitate the eventual transition to renewable energy.1 Even BlackRock, which has long been a champion of ESG integration, recently announced that they would be ratcheting back their support for environmental and social shareholder proposals, some of which they say are “implicitly intended to micromanage companies.”2
We agree with BlackRock’s recent pronouncement — some activist investors are indeed using an ESG cloak to disguise ulterior motives. A number of aggressive environmental activists are proposing measures that are diametrically opposed to companies’ commercial interests. Yet predictions that the importance of ESG and sustainability will begin to fade away are both simplistic and premature. Rather, what we are witnessing is a natural evolution as businesses more meaningfully grapple with what it means to truly embed sustainability as a business strategy – and not a marketing gimmick.
“I think people are mistaking the stakeholder capitalism thing for being woke…. All we’re saying is when we wake up in the morning, what we [care] about is serving customers, earning their respect, earning their repeat business.”3
Jamie Dimon,
CEO of JP Morgan Chase
The last several years have proven that sustainability is neither a gimmick nor even a “nice to have” – rather, it has become a fundamental strategic pillar for any best-in-class organization. Companies that have integrated sustainability into the core of their business have a significant competitive advantage, benefitting from improved brand equity, greater share of customer wallet, attracting and retaining next generation talent, future-proofing their supply chain, and complying with ever more stringent regulatory requirements. As Jamie Dimon and several other enlightened CEOs have stated, sustainability and ESG are not the enemy of the shareholder, but a tool for value creation of all types – financial, social and environmental. While CEO support is crucial, the ultimate responsibility for ensuring that companies reap these benefits lies squarely within the purview of a company’s most senior decision-makers: the board.
“In the United States, there is still a debate in board circles about whether sustainability even does rest in the boardroom or whether it’s solely a management issue. Our view is if it’s a significant or a material driver of value or risk, then it rests in the boardroom.”4
Michelle Edkins,
Managing Director, BlackRock Investment Stewardship
The recent media confusion and misdirection around sustainability has prompted several false narratives. Among them is the notion that boards do not need or want “sustainable directors,” often depicted as radical advocates caring only about environmental and/or social issues, to the detriment of the commercial success of the company.
This argument is being disproven in real time, as a new breed of sustainable board directors are being sought after by best-in-class companies around the world. These directors bring a valuable executive acumen as business leaders with a track record of commercial success, combined with a sustainable mindset that enables them to identify risks and opportunities that others may miss. While they may come from a range of backgrounds, they share a capacity for delivering commercial value across social, environmental and financial dimensions for the companies they govern.
Board Composition – Change is Needed
PwC’s 2021 Annual Corporate Directors Survey revealed that only 25% of directors report that their board understands ESG risks very well. Similarly, the NYU Stern Center for Sustainable Business assessed the credentials of 1188 Fortune 100 board directors and found that only about 1% possessed expertise in any environmental field, including energy, conservation, climate and sustainable development.5
“Today’s boards are just not equipped to deal with today’s challenges. They don’t reflect the real world anymore. The world has moved on, and, frankly, many of the boards have not moved on in ESG…and climate knowledge. We have a problem…that with the urgency that we need to act right now, boards might become a bottleneck.”
Paul Polman,
Former CEO of Unilever
It is evident that the current generation of board directors does not possess meaningful technical expertise when it comes to managing sustainability risks and opportunities. While such technical expertise may not be a prerequisite for success, boards going forward will require directors who combine a sustainable mindset with a track record of commercial success in order to provide strategic guidance as to how to maximize social, environmental and financial value creation. As with other macro considerations that are material to the business – digital transformation, and diversity, equity and inclusion, among others – board composition will need to evolve to face future challenges, as well as present ones.
Rather than seeking to add “single issue directors” who bring a narrow set of technical skills, boards should seek next-generation sustainable board directors who possess the differentiating attributes below, underpinned by a track record of commercial success. This model of the sustainable leader was developed by Russell Reynolds Associates in partnership with the United Nations Global Compact and resulted from an in-depth global study of 55 board directors and CEOs with a track record of successfully integrating sustainability into business strategy.
Three Archetypes of Next-Generation Sustainable Board Directors
“When it comes to demonstrating clear fluency or operational experience in sustainability matters, our observation is that there is a generational shift happening in boardrooms, and more of the newer directors, including first-time directors, have had more hands-on experience in their operational executive roles on sustainability-related matters, as those matters have risen up the corporate agenda.”6
Michelle Edkins,
Managing Director, BlackRock Investment Stewardship
Now that we have identified the attributes of a sustainable executive, boards may next ask where they might find such leaders? While there are many paths to the development of a sustainable mindset and the attributes above, our experience working with leading companies to appoint directors has highlighted three templates of the next-generation sustainable board director:
- CEO or C-Suite Executives who have led a sustainable business transformation and/or come from a best-in-class sustainable company
- Chief Sustainability Officers who have embedded sustainability while generating value and inspiring stakeholders across the organization
- Commercially-minded executive professionals coming from government, NGOs, or academia who understand the interconnectedness and complexity of global sustainability challenges and opportunities
Let’s review some recent appointments of these next-generation sustainable board directors to see how the attributes of a sustainable leader play out across the three archetypes:
CEO or C-suite Executives
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Beth Ford Beth Ford is the president and chief executive officer of Land O’Lakes, Inc., a Fortune 200 food production and agribusiness company that has pioneered industry-leading on-farm sustainability assessments that provides farmer-members with actionable insights to improve efficiency and reduce their environmental footprint. Ford is an inclusive leader who can bring alignment across diverse stakeholder views – as she has done leading Land O’Lakes’ nearly 100-year-old farmer and local retailer-owned cooperative. She sits on the board of directors for the Business Roundtable, the Fortune 150 company PACCAR, Inc., and other industry, non-profit and university boards. She has been recognized by Fortune as one of the World’s 50 Greatest Leaders and Most Powerful Women. |
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Gregory J. Goff Gregory Goff has a long track record of success spanning more than 40 years of energy experience holding various leadership positions, with his longest tenure being at ConocoPhillips. Goff served as CEO (2010-2018) and chairman (2014-2018) of Andeavor, a leading petroleum refining and marketing company formerly known as Tesoro Corp. There, Goff led a financial transformation generating total returns of over 1,200% versus 55% for the U.S. Energy sector. Named by Harvard Business Review as one of the “Best-Performing CEOs in the World” in 2018, Goff is a leader that can rigorously drive concerted action and investments in pursuit of ambitious targets. |
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Kaisa Helena Hietala Kaisa Hietala has more than 20 years of strategic and operational experience in the energy sector, beginning her career in upstream oil and gas exploration and crude oil trading. As former executive vice president of renewable products at Neste, Hietala was able to grow the renewable products segment’s revenue by 1.6x and operating profits by 4x to over $1 billion. She helped transform Neste into the world’s largest and most profitable producers of renewable diesel and renewable jet fuel, leading to what the Harvard Business Review named one of the “Top 20 Business Transformations of the Last Decade” in 2019. |
Chief Sustainability Officers
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Dane Parker As chief sustainability officer for one of the world’s largest automakers, Parker helped drive GM’s commitment to carbon neutrality by 2040 and towards electrification of the vehicle fleet. His other global responsibilities included overseeing as $4 billion P&L across facility design, engineering, construction and operations, energy procurement and efficiency, environmental compliance, real estate and workplace strategy. Prior to GM, Dane was vice president of global real estate, facilities and environment, health and safety, for Dell, Inc. Dane also spent more than 13 years at Intel Corporation in the Technology and Manufacturing organization in a variety of operational roles. |
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Jackie Roberts Jackie Roberts is chief sustainability officer of AppHarvest, a B-Corp certified sustainable food company in Appalachia developing and operating some of the world’s largest high-tech indoor farms. She was appointed to the board of Alcoa in May 2022. Prior to joining AppHarvest, Roberts held various executive roles at the Carlyle Group, a global diversified investment firm, including as chief sustainability officer (2014-2019) and managing director (2019-2020). Roberts also held various positions, including senior director, over her seventeen years with the Environmental Defense Fund (EDF). While at EDF, she was awarded the White House Presidential Environment and Conservation Challenge Award in 1991, for the creation of a partnerships program to help reduce environmental impact at companies such as McDonald’s, Starbucks and FedEx. |
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Pia Heidenmark Cook Pia Heidenmark Cook was chief sustainability officer (CSO) at Ingka Group (IKEA) between 2017-2021. IKEA is the world’s leading home furnishing retailer set out to become a people and planet positive business. Cook led a team of sustainability professionals in the global office, as well as sustainability experts integrated across the retail, shopping Centre and customer fulfilment business across 30 markets in Europe, Asia Pacific and North America, and was a member of the executive retail management team. Before that, she was head of sustainability in the largest business division, IKEA Group Retail & Expansion, embedding sustainability in IKEAs retail operations and securing a more sustainable offer to IKEA customers. She was, for several years (ended in 2017), co-chair of REAP (Retailers Environmental Action Programme) together with a member of the EU Commission. |
Strategy/Policy/Academia
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George Serafeim As a professor at Harvard Business School and world-renowned expert in ESG investing, Serafeim has the financial mindset but also strong strategic perspective on how material ESG factors that drive value creation should be identified and measured. He was recently appointed as an independent director of Liberty Mutual, a leading global property and casualty insurer that is increasingly exposed to global weather-driven losses and has set an ESG ambition to advance resilience and inclusive growth. Given his academic background and the wide array of research he has published on ESG, Serafeim has the ability to dive into the details of Liberty Mutual’s assessments of ESG risks and opportunities while also retaining the big picture and being aware of the wider, more complex systems that may be at play. With increasing regulatory reporting and market frameworks emerging, a sustainability-minded director must be able to hold management accountable in achieving ambitious climate targets and ensuring compliance. |
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Alexander Karsner Alexander Karsner is an accomplished energy industry entrepreneur and policymaker with more than three decades of global conventional and renewable energy experience. He began his career developing and financing large scale energy infrastructure, and as a private equity investor, venture partner, and advisor, his portfolios have included some of the most successful cleantech startups of the past decade. He previously served as U.S. Assistant Secretary of Energy, responsible for multi-billion dollar federal R&D programs. He is senior strategist at X (formerly Google X), the innovation lab of Alphabet Inc., and a Precourt Energy Scholar at Stanford University’s School of Civil and Environmental Engineering. |
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Lise Kingo Kingo spent 26 years at Novo Nordisk, where she served as chief of staff, executive vice president and a member of the executive management team since 2002, and was instrumental in defining their sustainable business strategy. Most recently, King served as CEO of the United Nations Global Compact (UNGC), the world’s largest corporate sustainability initiative calling on companies to align their strategies and operations with the UN’s Sustainable Development Goals (SDGs). She understands that to catalyze effective action, we will require proactive stakeholder inclusion from all facets of the world – business, government, cities, consumers. |
ConclusionWhile most corporate boards have traditionally been composed of retired CEOs and qualified financial experts, new experiential dimensions such as digital expertise, cybersecurity and DE&I have become hallmarks of good governance. Similarly, ESG fluency is becoming an important board composition requirement, as it becomes a critical pillar of any organization’s corporate strategy, risk management and regulatory compliance framework. As issues around climate change, racial and social injustice, and global pandemics become business and humanitarian issues, they will demand a business response. Companies that fail to incorporate these global themes into their corporate strategy are positioned for almost certain failure. Next generation corporate boards must include sustainable mindsets to future-proof their organizations against these threats, while simultaneously seizing upon the value creation opportunities. |
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Authors
Kurt Harrison co-leads Russell Reynolds Associates’ Sustainability Practice. He is based in New York.
Emily Meneer leads Russell Reynolds Associates’ Sustainability Practice Knowledge team. She is based in Portland.
Sylwia Zieba is a member of Russell Reynolds Associates’ Sustainability Practice. She is based in New York.
Vanessa Di Matteo is a member of the Knowledge team for Russell Reynolds Associates’ Sustainability Practice. She is based in London.
In the UK, RRA recently signed up with Chapter Zero to a commitment to evaluate all non-executive candidates for their motivation and capabilities around sustainability – and climate change in particular. More information is available at: Leading search firms sign joint declaration on climate capabilities in the boardroom - chapterzero
1 Mark Carney, “Financing the Net Zero Revolution”, Net Zero Delivery Summit, May 11 2022 Financing-the-Net-Zero-Revolution_NZDS-Speech-by-Mark-Carney.pdf (bbhub.io)
2 Catherine Clifford, “Blackrock to vote for fewer climate shareholder provisions in 2022 than 2021”, CNBC May 11 2022 Blackrock to vote for fewer climate provisions in 2022 than 2021 (cnbc.com)
3 https://www.ft.com/content/14fcf2be-067d-49e3-ae6d-814dd6a35abf
4 Chrissa Pagitsas, 2022. "Chief Sustainability Officers At Work," Springer Books, Springer, number 978-1-4842-7866-6, June.
5 Tensie Whelan, “U.S. Corporate Boards Suffer From Inadequate Expertise in Financially Material ESG Matters”, NYU Stern Center for Sustainable Business, January, 2021 U.S. Corporate Boards Suffer From Inadequate Expertise in Financially Material ESG Matters.docx (2.13.21).pdf (nyu.edu)
6 Chrissa Pagitsas, 2022. "Chief Sustainability Officers At Work," Springer Books, Springer, number 978-1-4842-7866-6, June.