3. The Seven Pillars of
Sustainability Leadership
RESEARCH REPORT R-1604-16
by Thomas Singer
4 Introduction and Methodology
6 Executive Summary
SEVEN PILLARS
11 I. The board of directors is actively engaged on sustainability issues
23 II. The CEO and C-suite champion sustainability
36 III. Sustainability is embedded in strategic planning
47 IV. Sustainability goals are strategic, ambitious, and long term
58 V. Executive compensation is tied to sustainability performance
64 VI. Sustainability is part of the innovation process
72 VII. Sustainability is woven into company reporting and engagement
80 About the Author
4. The Seven Pillars of Sustainability Leadership www.conferenceboard.org4
Introduction and Methodology
Each year since 1999, The Conference Board CEO Challenge®
survey has asked CEOs
around the world to identify their top business challenges. In the 2015 edition of the
survey, respondents included “sustainability” among the top five global challenges
for the first time since the survey’s launch. Surveys from other organizations, including
McKinsey, BCG, and the World Economic Forum, point to a similar rise in profile
of corporate sustainability issues. These issues—once predominantly associated
with compliance or philanthropy—are now ever more embedded in discussions of
company strategy. Sustainability is now a top agenda item for CEOs of many of the
world’s leading companies.
Despite the increased focus on corporate sustainability, business leaders continue to
struggle with integrating sustainability practices into their businesses. When asked to
identify the specific strategies to meet the sustainability challenge, respondents to
both the 2015 and 2016 editions of the CEO Challenge survey pointed to “ensuring
sustainability is part of the corporate brand identity and culture of the organization.”
While business leaders are beginning to understand the sustainability imperative, many
are unclear on how to address this imperative. What are the key practices that define
leadership in corporate sustainability? What are the steps companies can take to become
leaders in corporate sustainability?
This research report attempts to address these questions by examining a distilled set
of practices most often associated with leadership in corporate sustainability. The
report provides background and context for each of these top practices and offers
practical examples from companies that apply them. Because it focuses on a prioritized
list of practices, the report can serve as a guide to help company leaders direct their
sustainability efforts where they are most impactful and ultimately enable leaders to
embed a culture of sustainability leadership within their organizations.
Research methodology
Between October 2015 and January 2016, the research team surveyed 84 senior executives
who are members of The Conference Board Sustainability Councils and Chief EH&S
Officers Council. These council members represent companies with average revenues
exceeding $50 billion from a diverse set of industries. Council members were asked to
identify the practices they considered to be most indicative of leadership in corporate
sustainability (from a list of 15 curated practices based on a literature review and
discussions with subject experts). The practices examined in this report were selected
based on results from this survey. The order in which these selected practices appear in
this report does not reflect a further ranking or prioritization.
Council members also provided input on a separate survey of 10 questions specific
to the practices that were ultimately selected. Results of this survey are discussed
throughout the report.
5. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 5
Each of the practices identified in this report is examined based on a literature review of
current collective knowledge on governance and organizational sustainability practices.
A number of studies are referenced in this report as they provide valuable context and
detail on many of the practices identified by council members. These resources represent
knowledge from a diverse set of organizations, including Ceres, Harvard Business School,
KPMG, McKinsey & Company, MIT Sloan School of Management, PwC, The Boston
Consulting Group, and the United Nations.
Peer networks for sustainability officers
The Conference Board Councils are peer learning networks in which executives share
best practices and problem-solve in a highly confidential and collaborative environment.
Our councils of sustainability officers include:
• Sustainability Council I – Strategy and Implementation
• Sustainability Council II – Innovation and Growth
• Chief EH&S Officers Council
• European Council on Corporate Responsibility and Sustainability
To learn more about our councils, visit www.conferenceboard.org/sustainability or
contact katie.plotkin@conferenceboard.org
Defining sustainability
The Conference Board defines corporate sustainability as the pursuit of a business
growth strategy that creates long-term shareholder value by seizing opportunities
and managing risks related to the company’s environmental and social impacts. These
impacts include elements of corporate citizenship, corporate governance, environmental
stewardship, labor and workplace conditions, supply chain and procurement, community
involvement, and philanthropy.
The Conference Board has been conducting research in the area of corporate sustain-
ability for more than a decade, in response to the increasing interest by corporate
executives in stakeholder engagement and social responsibility. Since 2012, through
collaborations with NASDAQ, NYSE, Bloomberg, and the Global Reporting Initiative
(GRI), The Conference Board has introduced and expanded a set of benchmarking
reports to assist companies in the peer comparison of their disclosure and performance
across a wide variety of environmental, social, and governance (ESG) practices.
For additional information on these benchmarking reports and other research in the area
of corporate sustainability, please visit: www.conferenceboard.org/sustainability.
7. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 7
2 The CEO and C-suite champion sustainability
The companies most often recognized as sustainability leaders are typically led by a CEO
who actively champions sustainability. It may seem obvious, but companies where CEOs
and senior management take an active role in sustainability are more likely to experience
success with their sustainability strategies. While not all CEOs can be expected to lead
sustainability strategy, companies should strongly consider ensuring their head of sustain-
ability (a chief sustainability officer, for example) has a direct reporting link to the CEO
and regular access to the board of directors. Sustainability steering committees also offer
a useful mechanism for developing and implementing a company’s sustainability strategy.
To ensure sustainability is elevated to a strategic level, these committees are most
effective when chaired by the CEO or a member of the C-suite. For instance, Siemens’
sustainability steering committee is not only chaired by the chief sustainability officer,
it also includes four out of the seven members of the company’s managing board. It is
perhaps no coincidence that Siemens’ Environmental Portfolio accounted for almost half
(43 percent) of the company’s overall revenue in 2015.
Some companies also choose to form sustainability committees composed exclusively
of external advisors, who can provide additional subject matter expertise and an
objective perspective.
3 Sustainability is embedded in strategic planning
Sustainability-related issues can no longer be ignored by companies wishing to remain
competitive in the long term. Environmental risks, such as climate change and water
scarcity, have been climbing up global rankings of business risks. In fact, an environmental
risk has topped the World Economic Forum Global Risks Report for the first time since the
report’s inception in 2006. The “failure of climate change mitigation and adaption” was
ranked the number one global risk in terms of impact.2
Companies are beginning to act:
More than one-fourth of S&P 500 companies now include discussion of the risks associated
with climate change in their annual SEC filings, up from just 5 percent in 2013 (see page 46).
Companies need to be prepared to manage environmental and social risks that can have
significant business implications. To do so, it is important for companies to consider and
integrate sustainability issues in their strategic planning process. Companies can begin
by developing a priority list of sustainability risks and opportunities most material to their
business, with input from internal and external stakeholders.
4 Sustainability goals are strategic, ambitious, and long term
A fundamental change in the way companies think about value creation is evident in the
types of sustainability goals leading companies are setting. Many of these goals are not just
about operational efficiencies—doing “less bad”; they are increasingly about adding value.
2 “The Global Risks Report 2016, 11th
Edition,” World Economic Forum, Switzerland, 2016 (http://www3.weforum.
org/docs/GRR/WEF_GRR16.pdf).
8. The Seven Pillars of Sustainability Leadership www.conferenceboard.org8
For example, as part of DuPont’s 2020 sustainability goals, the company will measure and
report on the quantifiable safety, health, and sustainability benefits from DuPont’s major
growth innovations.3
Setting corporate sustainability goals helps companies create accountability for improving
sustainability performance and helps focus attention on the issues that matter most to
the company and its stakeholders. The right sustainability goals can also help employees
rally behind their company’s sustainability strategy and can reinvigorate a culture of
innovation. To be most effective, sustainability goals should be strategic, ambitious, and
focused on the long term.
Strategic goals ensure targets are in line with a company’s most important sustainability
issues, typically identified using a materiality analysis process. Ambitious goals can help
kick-start innovation and create a sense of urgency. Companies that set bold stretch
goals—goals that are seemingly unattainable—often achieve significant improvements in
performance, even if those goals are not ultimately met. The time frame is also important,
as goals with target dates of 2020 and beyond help ensure companies adequately prepare
for future risks and opportunities. LEGO, for example, in 2012 announced a commitment to
make all of its products from sustainable materials by 2030, thus replacing oil-based plastic.
5 Executive compensation is tied to sustainability performance
It is no secret that incentive compensation of the C-suite drives focus, attention, resource
allocation, and performance. Companies that are serious about sustainability are placing
sustainability performance metrics squarely in their incentive compensation schemes.
This is crucial as business leaders point to a lack of incentives as a significant obstacle to
achieving their companies’ sustainability potential. Linking incentive compensation to a
set of sustainability targets helps make sustainability a priority for the organization and
can steer company leadership to consider initiatives with long-term benefits that may
otherwise have been ignored.
While the number of companies that have introduced pay for sustainability performance
is growing, the sample remains fairly low. For companies that introduce this practice, the
sustainability benefits can be significant: Incorporating pay for sustainability performance
can reward long-term thinking, elevate sustainability issues to the CEO’s agenda, and
drive performance against sustainability targets. DSM’s short-term incentive scheme, for
example, takes into consideration the percentage of successful product launches that
meet the company’s ECO+ criteria (products that offer a superior performance and lower
environmental footprint than competing mainstream products over their entire life cycle).
The impact on performance has been significant: By 2015 DSM’s ECO+ solutions accounted
for 91 percent of the company’s innovation pipeline (see page 67).
3 NB: A merger between DuPont and Dow Chemical is expected to be completed by the second half of 2016. The
combined company, DowDuPont, is expected to be separated into three independent, publicly traded companies.
9. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 9
6 Sustainability is part of the innovation process
The motivation for launching corporate sustainability strategies is shifting significantly
from achieving compliance, risk, and operational efficiencies to spurring innovation and
market growth opportunities. Companies are increasingly pointing to revenue growth
and business opportunities as a primary reason to get started on sustainability.
In many ways, this is a result of growing demand from customers for solutions that
help address sustainability challenges. Companies seeking to improve their sustain-
ability profiles are generating demand for products and solutions to meet these needs.
Suppliers are responding with innovative solutions that in some cases redefine an entire
product category or open a new market, in the way that Lighting as a Service solutions
have done for companies such as Philips.
Products and services with improved environmental and/or social profiles can represent
significant revenue growth opportunities. For this reason, several leading companies
are investing heavily in sustainability innovation to meet growing customer demand for
sustainability solutions. Industry leaders such as GE and DuPont, for example, invest
about half of their R&D budgets in environmental innovations (see page 67).
The capacity to recognize and act upon the revenue potential that sustainability offers
is ultimately an outcome of many of the practices mentioned above. To companies that
dedicate sufficient board time to sustainability, have champions within the C-suite who
ensure sustainability is part of strategic planning, and adequately incentivize sustain-
ability performance, sustainability represents an obvious opportunity and source of
competitive advantage.
7 Sustainability is woven into company reporting
and engagement
Companies at the forefront of sustainability excel at transparency; they are comfortable
with openly reporting sustainability challenges and not just opportunities, and they
see value in discussing company financial and nonfinancial performance side by side.
For these companies, sustainability is woven into communications with stakeholders and
is an integrated and core component of the company’s reporting process.
While the reporting of sustainability information has become common practice among
large companies, there is still wide variation in the quality and scope of this reporting.
Following standard guidelines helps ensure comparability, consistency, and materiality
of reported information. And closer integration of a company’s sustainability and
financial reporting—still an emerging practice—also offers an opportunity to further
embed sustainability into company strategy. Transparent communication can also
improve sustainability engagement with company investors, a much-needed benefit as
engagement levels remain low for many companies.
CEOs also play an important role, as their rhetoric can be influential in strengthening
the sustainability profile of the organizations they lead.
10. The Seven Pillars of Sustainability Leadership www.conferenceboard.org10
The past couple of years have seen a rapid acceleration in the pace of corporate sustain
ability initiatives (or core strategic initiatives, as the most forward-thinking companies view
them). Some of the world’s biggest companies are embarking on bold strategic initiatives
that are having a significant impact on their investments, sales, growth, business models,
and environmental footprint. These initiatives rarely emerge by chance; they are a result
of specific actions that pave the way for sustainability leadership.
Corporate sustainability leaders recognize that the more time company directors,
CEOs, and C-suite executives spend in serious deliberation and debate about
sustainability issues:
• The more engaged they become;
• The more they begin to grasp the magnitude of the transformation that
a low-carbon, resource-constrained world will offer;
• The more bold they become about the goals and investments
they commit to; and
• The more excited they become about the upside opportunities for
sustainability-led innovation and growth.
Defining sustainability
The Conference Board defines corporate sustainability as the pursuit of a business
growth strategy that creates long-term shareholder value by seizing opportunities
and managing risks related to the company’s environmental and social impacts. These
impacts include elements of corporate citizenship, corporate governance, environmental
stewardship, labor and workplace conditions, supply chain and procurement, community
involvement, and philanthropy.
11. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 11
I. The board of directors is actively
engaged on sustainability issues
Input from members of The Conference Board clearly points to active sustainability
engagement from the board of directors as the governance practice most often
associated with leadership in corporate sustainability; specifically, the existence of a
company board that explicitly recognizes responsibility for sustainability oversight and
acts upon this responsibility. This section offers an overview of why board engagement
on sustainability matters, as well as examples of various ways in which companies are
approaching this practice.
At a tactical level, companies with boards that engage on sustainability issues may be
more successful in reaching their corporate sustainability goals. Research conducted
by MIT Sloan Management Review and The Boston Consulting Group (BCG) shows
companies with boards that are actively engaged on sustainability are twice as likely
to successfully accomplish their sustainability initiatives.4
However, while 86 percent of
survey respondents believed boards should play a strong role in driving a company’s
sustainability efforts, only 42 percent perceived boards to be even moderately engaged
with a company’s sustainability strategy.5
4 David Kiron, Nina Kruschwitz, Knut Haanaes, Martin Reeves, Sonja-Katrin Fuisz-Kehrbach, and Georg Kell,
“Joining Forces: Collaboration and Leadership for Sustainability,” MIT Sloan Management Review, January 12,
2015, p. 6.
5 Kiron et al., “Joining Forces,” MIT Sloan Management Review, p. 6.
To what extent is the board of directors engaged in your organization’s
sustainability efforts?
Chart 1
Source: MIT Sloan Management Review
Don’t knowNot at allTo some
extent
To small
extent
To moderate
extent
To great
extent
15%13%14%15%20%22%
42% report that their
boards are substantially
engaged in sustainability.
n=2,587
12. The Seven Pillars of Sustainability Leadership www.conferenceboard.org12
Besides improving the odds for success of a company’s sustainability initiatives, boards
that are engaged on sustainability are also more likely to take a longer-term view and thus
are able to better foresee and prepare companies for potential risks and opportunities.
A report from the Finance Initiative of the United Nations Environment Programme
(UNEP) makes the point that boards that are engaged in sustainability strategy are more
likely to focus more on long-term success than on short-term financial results.6
Preparing
for long-term success requires an understanding of the potential economic, social, and
environmental challenges facing companies—challenges that can result in significant
risks or missed opportunities if ignored. The National Association of Corporate Directors
points out that sustainability oversight is increasingly becoming a board-level issue, not
least because of the global megatrends that are affecting companies, many of which fall
in the realm of sustainability issues (such as resource scarcity and climate change) and
are central to board discussions about strategy, risk, and performance.7
In other words,
sustainability issues can significantly affect a business, and company boards are right to
start paying more attention to these issues.
Is short-term behavior jeopardizing the future prosperity of business?
A recent report from The Conference Board examines short-term
corporate behavior by boards and management and offers
insights on how public company CEOs and boards can effectively
balance short- and long-term performance in the face of constant
pressure to meet quarterly guidance and maximize profits, often
at the expense of future profitability. Along with board members
and investors, business leaders should review their companies’
governance structures and consider whether any changes could
better serve their long-term prospects. In particular, the report
offers some of the following suggestions for governance changes companies can make,
with support of their investors:
• Abandon quarterly bottom-line earnings guidance and replace it with longer-term
guidance and information that is material to the company’s longer-term prospects.
• Revamp executive compensation to reward longer-term thinking.
• Consider the benefits of offering extra dividends or enhanced voting rights to
reward longer-term investors.
• Adopt capital allocation policies to ensure the long-term interests of the company
are not sacrificed to the pressures of daily business activity.
For more details see Is Short-Term Behavior Jeopardizing the Future Prosperity of
Business? The Conference Board, October 2015.
6 Integrated Governance: A New Model of Governance for Sustainability, United Nations Environment Programme
Finance Initiative, June 2014, p. 32.
7 Director’s Handbook on Oversight of Corporate Sustainability Activities – Executive Summary, National
Association of Corporate Directors and Ernst & Young LLP, 2014, p. 3.
13. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 13
Is sustainability oversight a fiduciary duty?
If sustainability issues represent real risks and opportunities for companies, should boards
be expected—rather than simply encouraged—to have oversight of sustainability?
There is plenty of literature arguing that sustainability may be a concern of directors in
the pursuit of their fiduciary duty to maximize shareholder value and not contrary to the
responsibilities of the board. In the report Sustainability Matters: How and Why Corporate
Boards Should Become Involved, The Conference Board provides an overview of the
doctrinal arguments most often used to support this case, including directors’ duty of
care, the business judgment rule, and state constituency statutes.8
The report also cites
evolving court standards that assert that corporate fiduciaries, while pursuing value
maximization for the owners, may also consider the interests of key stakeholder groups.
That boards should have oversight is an increasingly accepted view as corporate sustain-
ability practices shift from being largely voluntary to being expected or even required.
As an example, legal scholars point to the evolution of the European Commission’s
definition of corporate social responsibility (CSR) to de-emphasize the voluntary nature of
CSR. In 2001, the commission defined CSR as “a concept whereby companies integrate
social and environmental concerns in their business operations and in their interaction
with their stakeholders on a voluntary basis.” This definition was updated in 2011 as
“the responsibility of enterprises for their impacts on society.”9
The trend away from
voluntary measures is not limited to rhetoric and definitions—legislation has already
been introduced in several countries and regions requiring companies to report on their
sustainability activities and meet certain sustainability-related requirements, such as
emissions reductions or diversity targets.
Despite increasing recognition of sustainability issues as material business issues, many
directors continue to give discussions of sustainability short shrift (see “Are boards allocating
sufficient time to discussions on sustainability?” page 19). One of the biggest barriers to
greater board engagement on sustainability is the belief many directors hold that maximizing
shareholder value (essentially short-term value, given that the average holding period
for stocks is less than one year) is a company’s legal obligation and a director’s fiduciary
responsibility, the report by MIT Sloan Management Review and BCG found. The report
swiftly labels this as a mistaken belief and highlights literature to back this up, including a
2010 Harvard Business Review article, “The Myth of Shareholder Capitalism,” and a 2012
book by law professor Lynn Stout, “The Shareholder Value Myth.”10
Both publications
come to the conclusion, based on legal research, that maximizing shareholder value is
neither a company’s legal obligation nor a director’s fiduciary responsibility.
8 Sustainability Matters: How and Why Corporate Boards Should Become Involved, The Conference Board, October
2011, p. 29.
9 Beate Sjåfjell & Linn Anker Sørensen, “Directors’ Duties and Corporate Social Responsibility (CSR),” University of
Oslo Faculty of Law Legal Studies Research Paper Series No. 2013-26, pp. 16-17.
10 Kiron et al., “Joining Forces,” MIT Sloan Management Review, p. 15.
14. The Seven Pillars of Sustainability Leadership www.conferenceboard.org14
Given that board oversight of sustainability is within the purview of directors, and board
engagement on ESG issues can help companies not only meet their sustainability goals
but also manage broader long-term risks and opportunities, it makes sense for investors
and shareholders to be keen on companies ensuring their boards are actively engaged
on this topic. Current levels of engagement are relatively modest: 36 percent of respon-
dents in a 2014 survey by The Conference Board assign responsibility for sustainability
oversight to the board,11
with larger companies by revenue almost twice as likely as smaller
companies by revenue to do so (see Chart 3 on page 16). Investors aware of the benefits
of board engagement on sustainability would like to see these figures grow.
A recent Ceres report, for example, points out that investors are increasingly focusing
on the role that boards play in overseeing material sustainability issues as part of their
fiduciary responsibility. The report references figures from the Sustainable Investment
Institute that show over 250 shareholder resolutions were filed between 2010 and 2014
asking for board oversight of sustainability issues.12
The specific requests made in these
resolutions vary. One type of request, for example, calls for boards to establish separate
committees on sustainability. A review by The Conference Board of data from FactSet
shows that in 2015 there were two shareholder resolutions making this specific request,
filed at Starbucks and PepsiCo. That both resolutions received low levels of support (just
over 3 percent of shares outstanding each) does not necessarily indicate a lack of board
willingness to engage on sustainability. For example, the Starbucks board recommended
voting against the proposal in part because sustainability considerations are included
in the charter of the board nominating/governance committee.13
Similarly, the board of
directors of PepsiCo also recommended voting against the proposal based on the recog-
nition that “the full board considers sustainability issues an integral part of its business
oversight” and that the nominating and corporate governance committee is charged
under its charter with reviewing sustainability initiatives.14
Determining a board structure for sustainability
While investors’ calling for boards to demonstrate sustainability engagement by
establishing separate sustainability committees can indeed be effective for some
companies, it is not always the best approach. There are multiple ways in which boards
can be structured to ensure engagement on sustainability, some of which may be more
effective than establishing a separate committee on sustainability.
11 Results from a 2014 survey of 307 SEC-registered business corporations administered by The Conference Board
in collaboration with NASDAQ OMX and NYSE Euronext.
12 Veena Ramani, View from the Top: How Corporate Boards Can Engage on Sustainability Performance, Ceres,
October 2015, p. 6.
13 Starbucks 2015 Proxy Statement, p. 50.
14 PepsiCo 2015 Proxy Statement, p. 76.
15. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 15
The basic models for sustainability board oversight most commonly used are:
• Tasking one of the common board committees (e.g., governance and nominating
committee; audit committee) with oversight of sustainability;
• Tasking a (new or existing) committee that is dedicated largely (or entirely) to
corporate responsibility, sustainability, environment, health and safety, and
related topics;
• Deciding that the full board will handle oversight of these issues rather than
delegating to a committee.
The 2014 survey of SEC-registered companies found that, overall, the majority of
companies with board oversight of sustainability choose to assign this responsibility to
the full board, though there are significant differences by company size.15
An analysis
by revenue group reveals larger companies are more likely than smaller ones to assign
oversight responsibility to a dedicated sustainability committee or to an existing
committee rather than to the full board.
15 Results from a 2014 survey of 307 SEC-registered business corporations administered by The Conference Board
in collaboration with NASDAQ OMX and NYSE Euronext.
Responsibility for sustainability oversight, by industry
Chart 2
Source: The Conference Board/NASDAQ OMX/NYSE, 2015.
Full board of directors
Board chairman/lead director,
acting as liaison with senior
management on these issues
Chief Executive Officer
Dedicated standing committee
of the board
Nominating/governance committee
Senior executive (other than the CEO)
reporting directly to the CEO
Senior executive (other than the CEO)
reporting directly to the board
Other
31.9
19.3%
10.9
11.8
10.1
11.82.5
1.7
Manufacturing
n=119
32.7
15.4%
21.2
7.7
5.8
13.5
1.9
1.9
Financial services
n=52
41.0
12.0%
15.4
10.3
8.5
11.1
1.7
Nonfinancial services
n=117
Percentages may not add up to 100 due to rounding.
16. The Seven Pillars of Sustainability Leadership www.conferenceboard.org16
Each structure has its own set of advantages and disadvantages. A dedicated sustainability
committee, for example, can send a strong signal to the company and its stakeholders about
the seriousness with which the board treats sustainability, but it also risks creating a silo that
hinders efforts to fully integrate sustainability into the organization. Meanwhile, tasking the
full board with sustainability oversight can be an effective way of ensuring integration of
sustainability issues, but it can also discourage these issues from being discussed if board
members are not sufficiently proactive or knowledgeable about sustainability issues.
Responsibility for sustainability oversight, by company revenue
Chart 3
Source: The Conference Board/NASDAQ OMX/NYSE, 2015.
$20 billion and over
n=28
Percentages may not add up to 100 due to rounding.
$10-19.9 billion
n=29
$5-9.9 billion
n=32
$1-4.9 billion
n=70
$100-999 million
n=53
Under $100 million
n=24
0 100%
28.6
37.9
40.6
45.7
34.0
16.7
10.7%
3.4%
12.5%
11.4%
26.4%
29.2%
3.6
3.4
6.3
11.4
20.8
33.3
35.7
24.1
12.5
4.3
1.9
4.2
21.4
17.2
15.6
8.6
5.7
4.2
3.1
2.9
11.3
12.5
13.8
9.4
15.7
Full board of directors
Board chairman/lead director,
acting as liaison with senior
management on these issues
Chief Executive Officer
Dedicated standing committee
of the board
Nominating/governance committee
Senior executive (other than the CEO)
reporting directly to the CEO
Senior executive (other than the CEO)
reporting directly to the board
Other
17. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 17
Assigning sustainability oversight to an existing committee, such as a governance
committee, can strengthen the link between strategy and implementation but can
also risk burying sustainability under existing agenda items.16
Ultimately what is most
important is that sustainability issues get addressed by the board of directors, regardless
of the structure chosen or the specific name used to describe a committee that over-
sees these issues.
Examples of companies’ varying structures for board oversight of
sustainability
• Unilever’s full board has oversight of sustainability, and specific agenda items,
including sustainability reporting, are delegated to the Corporate Responsibility
Committee of the board. The committee meets quarterly and comprises a
minimum of three nonexecutive directors. A member of the Unilever Leadership
Executive attends the meetings of the committee and also chairs the company’s
Sustainable Living Plan Steering Team (which is accountable for the company’s
sustainability goals) and external sustainability advisory board (the USLP Council).
• Nike Board oversight of sustainability falls to Nike’s Corporate Responsibility
and Sustainability Committee, established in 2001 at the suggestion of a board
member who accepted the role of chair with the proviso that the CEO attend
every meeting of the committee. The committee reviews significant policies
and activities and makes recommendations regarding labor and environmental
practices and community impact and charitable activities. In 2013, the
committee’s charter was updated to review strategy and performance and to
formally include sustainability and innovation. The committee receives regular
briefings from Nike’s chief sustainability officer and VP, Innovation Accelerator,
who also attends all of the committee’s meetings.
• At Intel, board oversight of sustainability falls under the responsibilities of
the Corporate Governance and Nominating Committee. While the committee
assumed this responsibility in 2003, in 2010, Intel amended the charter of the
committee to add clarity that the committee “… review(s) and report(s) to the
Board on a periodic basis with regard to matters of corporate responsibility and
sustainability performance, including potential long and short term trends and
impacts to our business of environmental, social and governance issues, including
the company’s public reporting on these topics.”
16 David Grayson and Andrew Kakabadse, Towards a Sustainability Mindset: How Boards Organise Oversight and
Governance of Corporate Responsibility, Business in the Community, p. 9.
18. The Seven Pillars of Sustainability Leadership www.conferenceboard.org18
While there are numerous reasons behind a company’s choice of board structure,
research from Harvard Business School professors indicates that board oversight of
sustainability tends to depend on the stage of a company’s sustainability “maturity.”
The research classified a sample of 180 companies into two groups, High Sustainability
companies and Low Sustainability companies, primarily based on whether companies had
adopted a comprehensive set of corporate sustainability policies, including those related
to the environment, employees, community, products, and customers. Fifty-three percent
of the companies in the High Sustainability group assigned formal responsibility for
sustainability to the board of directors, whereas only 22 percent of the Low Sustainability
companies did so. Further, 41 percent of the High Sustainability companies opted for a
separate board-level sustainability committee, compared to 15 percent of companies in
the Low Sustainability grouping.17
The specific board structure a company chooses can evolve over time to meet the
needs of the organization. For companies that are just beginning to formulate a sustain-
ability strategy, creating a separate board sustainability committee—or requiring the
full board to tackle sustainability issues—is likely too big of an ask. For these companies,
a more realistic approach would be tasking an existing committee with overseeing
sustainability strategy and perhaps considering establishing a separate sustainability
committee at a later time.
A report by the UN Global Compact argues that companies would benefit from the
establishment of a separate sustainability committee because, among other reasons, a
separate committee significantly increases the amount of time that board members can
dedicate to sustainability issues and can also be symbolic as it increases the visibility of
the board’s commitment to both internal and external stakeholders.18
For organizations
that are further along in their integration of sustainability into the business, a separate
sustainability committee could actually be an impediment to further integration as it
can isolate sustainability discussions to one committee rather than elevate them to the
entire board. For these organizations, the ideal oversight structure might resemble one
where sustainability issues are fully integrated into the board and material sustainability
issues are actively discussed in the relevant board committees. Ultimately an organi-
zation should choose a structure that encourages the board to allocate sufficient time to
addressing sustainability as part of company strategy.
17 Robert G. Eccles, Ioannis Ioannou, and George Serafeim, “The Impact of Corporate Sustainability on
Organizational Processes and Performance,” Management Science 60, no. 11, November 2014, p. 7.
18 A New Agenda for the Board of Directors: Adoption and Oversight of Corporate Responsibility, United Nations
Global Compact, Global Compact LEAD, 2012, p. 14.
19. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 19
Are boards allocating sufficient time to discussions on sustainability?
Results from a survey by The Conference Board of sustainability and environmental
health & safety (EH&S) executives reveal sustainability issues may not be getting
sufficient airtime at board meetings. For instance, one-third of respondents indicate their
companies’ sustainability and/or EH&S functions meet with the board of directors only
one time per year, and almost 1 in 4 respondents indicate these functions never meet
with the board. When asked about the amount of time their companies’ board members
spend on sustainability and/or EH&S issues, 69 percent of respondents indicated two to
four hours per year, the lowest option presented.
How many times each year do the sustainability / EHS functions meet with/present
to the board of directors (committee or full board)?
Chart 4
How much board meeting time does the board committee (or full board) typically
spend annually on sustainability / EHS (all of those combined) issues?
Chart 5
Source: Results from a 2016 survey of members of The Conference Board Sustainability Councils
and Chief EH&S Officers Council.
More than
16 hours
per year
8 to
16 hours
per year
4 to
8 hours
per year
2 to
4 hours
per year
0 100%
13.7% 7.8 9.8 68.6
Percentages do not add up to 100 due to rounding.
More than
three times
per year
Three
times
per year
Twice
per year
Once
per year Never
12.5% 12.5 20.3 32.8 21.9
N=64
N=51
20. The Seven Pillars of Sustainability Leadership www.conferenceboard.org20
Ensuring boards have sustainability expertise and
access to experts
Beyond board structure, companies should also consider the level of their board’s
expertise on sustainability topics, as well as the board’s access to internal and external
sustainability experts. Research suggests that board expertise on sustainability issues
is quite low. For example, Ceres found that among a sample of 774 directors who sit
on sustainability committees, only 19 percent had discernible expertise in ESG issues.19
Appointing board members with sustainability experience is one way to ensure a board
is sufficiently versed in these topics. Prudential Financial, for example, made corporate
responsibility skills a requirement for board member selection.20
Similarly, UBS has a
board-level Corporate Culture and Responsibility Committee composed of members who
are expected to “have good knowledge of corporate responsibility and relevant societal
issues.”21
In addition, over the last two decades a number of companies have appointed
prominent sustainability figures to their boards, including DuPont (William K. Reilly, who
served as administrator of the US Environmental Protection Agency under President
George H.W. Bush), Ashland (John F. Turner, who was US assistant secretary of state for
the Bureau of Oceans and International Environmental and Scientific Affairs from 2001
to 2005), and International Paper (Patrick F. Noonan, who was president of The Nature
Conservancy from 1973 to 1980 and founded The Conservation Fund in 1985).22
There
are other ways companies can ensure the board has sufficient sustainability expertise.
Some companies, for instance, opt to establish external sustainability advisory boards to
help support senior management and the board with ESG-related issues (see page 33 for
specific examples). Direct and frequent access to sustainability experts can provide board
members an important resource to help inform strategy decisions.
In 2015, the board of directors of Sims Metal Management decided to codify in writing
its personal commitment to sustainability excellence and to share this commitment with
company employees, contractors, and external stakeholders (see Exhibit 1 on page 21).
19 Ramani, View from the Top, Ceres, p. 16.
20 Integrated Governance, UNEP Finance Initiative, p. 40.
21 The Organization Regulations of UBS Group AG and UBS AG, January 1, 2016, p. 52 (http://tinyurl.com/jrolb8f).
22 Gilbert S. Hedstrom, Navigating the Sustainability Transformation, The Conference Board, January 2015, p. 8.
21. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 21
Exhibit 1
An example of board action on sustainability from Sims Metal Management
In 2015, the board of directors of Sims Metal Management decided to codify in writing its personal commitment to
sustainability excellence and to share this commitment with company employees, contractors, and external stakeholders.
The result was the Board of Directors’ Commitment to Safety, Health, Environment, Community and Sustainability (SHECS).
Source: Sims Metal Management
Sustainability Report 2015, p. 8.
22. The Seven Pillars of Sustainability Leadership www.conferenceboard.org22
IN SUMMARY
• Active sustainability engagement from the board of directors is the governance
practice most often associated with leadership in corporate sustainability.
• Board engagement on sustainability is a function of structure, time, and
expertise. An engaged board can better prepare a company for long-term
risks and opportunities and can improve a company’s chances of successfully
achieving its sustainability goals.
— There is no one best board structure for sustainability oversight—
what is ultimately important is that sustainability issues are sufficiently
addressed by the board. Some boards choose to assign responsibility
for sustainability to one of the “typical” board committees (e.g., gover-
nance and nominating; audit and finance), while others dedicate a
committee largely or entirely to sustainability or assign responsibility
to the board at large. The chosen structure may also change over time
depending on circumstances.
— Boards should ensure they have adequate sustainability expertise by
appointing board members with relevant expertise, enabling regular
access to company experts, or establishing external advisory boards.
24. The Seven Pillars of Sustainability Leadership www.conferenceboard.org24
A number of factors have led to the increase in prominence of sustainability issues in CEO
agendas, including more frequent board discussions of sustainability-related risks and
opportunities; greater demand from customers; pressure from investors; and growing
interest from current and prospective employees. CEOs are beginning to recognize the
business case for and value of a sound sustainability strategy. For instance, in a 2015
survey by Ethical Corporation, 69 percent of corporate respondents said their CEO was
convinced of the value of sustainability.25
This finding is significant as CEO buy-in is crucial
to the success of a company’s sustainability strategy. A CEO who understands the value
that sustainability brings to the organization can pave a smoother path for initiatives
that may otherwise struggle to be implemented. In fact, many of the companies that
consistently top lists and rankings of leadership in corporate sustainability are led by
CEOs who visibly champion sustainability.
What sustainability leadership from the CEO looks like
Over the past decade and beyond, many CEOs globally have demonstrated leadership—
in some cases bold leadership—on sustainability. The actions CEOs have taken to
demonstrate leadership can be characterized by some of the following traits:
Prioritizing long-term growth over short-term profits The chasm between upholding
the principles of sustainability and reporting positive financial results quarterly is one not
easily bridged by publicly listed companies, and few CEOs of large companies are able to
avoid the short-termism of quarterly reporting. There are signs, however, that companies
may begin to steer away from this approach. For example, in a recent letter to more
than 500 companies, the CEO of BlackRock Inc. urged CEOs of leading companies to
stop offering quarterly earnings guidance and increase their focus on long-term goals.26
The suggestion is not unrealistic: when Paul Polman became CEO of Unilever in 2009,
he immediately announced that he would stop issuing earnings guidance and end full
quarterly reporting. In a recent interview, he explains that:
The issues we are trying to attack with our business model and that need
to be solved in the world today—food security, sanitation, employment,
climate change—cannot be solved just by quarterly reporting. They require
longer-term solutions and not 90-day pressures.27
In Europe, regulatory developments are making it easier for companies to steer away
from quarterly reporting. The United Kingdom ended quarterly reporting requirements
in November 2014, with the rest of the European Union following suit a year later (though
some local stock exchanges require it for some segments).
25 The State of Sustainability 2015, Ethical Corporation, April 2015, p. 9.
26 “BlackRock Chief Urges Companies to End Quarterly Profit Guidance,” Bloomberg, February 2, 2016 (www.
bloomberg.com/news/articles/2016-02-02/blackrock-chief-urges-companies-to-end-quarterly-profit-guidance).
27 “The Tao of Paul Polman,” Washington Post, May 21, 2015 (www.washingtonpost.com/news/on-leadership/
wp/2015/05/21/the-tao-of-paul-polman/).
25. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 25
Setting ambitious sustainability goals that “stretch” the organization For CEOs
of leading companies, incremental improvements in sustainability reporting or in
footprint reduction are not sufficient. They want to drive bold action—and normally do
it by setting what Jim Collins, co-author of Built to Last: Successful Habits of Visionary
Companies, coined as Big Hairy Audacious Goals. These goals—often with uncertain
probabilities of accomplishment and with target dates typically at least 10 years into
the future—purposefully stretch an organization and create a sense of urgency. Few
CEOs are comfortable setting these types of goals, but these are generally the goals
that best motivate an organization to accomplish step-change levels of innovation.
For example, in 2011 Phil Martens (then CEO of Novelis) introduced a number of
corporate-wide sustainability targets, including an ambitious goal of attaining 80
percent of the company’s production output from recycled aluminum by 2020 (in 2011
recycled aluminum accounted for 33 percent, and 49 percent in 2015). An excerpt
from an interview with Martens reveals this goal was meant to stretch the company’s
thinking and innovation:
Martens is aware that his 80% recyclable content goal is ambitious and
wants to make it clear that it’s an aspirational target. He knew when he
announced last summer that 70% was possible—“if we really do things
right”—but when he went for 80% the objective was to push the envelope.
“I wanted to look beyond what we could do in theory,” Martens says,
explaining how companies that stretch themselves and “realign their
perspectives” will drive better sustainable business models—even if they
don’t know how to get there. “In fact, it’s probably better that you don’t
know how to get there because it stretches your thinking,” he ventures.28
Other CEOs have made similar bold commitments—commitments that are less about
actually achieving the goal and more about the innovations that result from pursuing
the goal. In 2005, for example, Lee Scott, then CEO of Walmart, announced in a speech
broadcast to all company associates:
Our environmental goals at Walmart are simple and straightforward:
1) to be supplied 100 percent by renewable energy; 2) to create zero waste;
and 3) to sell products that sustain our resources and environment. These
goals are both ambitious and aspirational, and I’m not sure how to achieve
them—at least not yet. This obviously will take some time.29
28 Matthew Moggridge, “Canned Heat,” Aluminium International Today, September/October 2012, p. 25.
29 “Twenty First Century Leadership,” speech by Lee Scott, October 23, 2005 (http://news.walmart.com/executive-
viewpoints/twenty-first-century-leadership).
26. The Seven Pillars of Sustainability Leadership www.conferenceboard.org26
Realizing sustainability as a driver of innovation and business opportunities CEOs at
the forefront of sustainability recognize that many of the challenges posed by environ-
mental and social pressures actually represent significant business opportunities. These
CEOs see sustainability strategies as an opportunity to refocus a company’s business to
meet emerging societal needs. For example, resource scarcity creates demand for more
efficient products, and companies that can develop these products are able to position
themselves at an advantage. Research from The Conference Board reveals several large
companies are generating substantial revenues from portfolios of sustainable products
and services—and these revenues have been growing at, on average, six times the rate of
overall revenues among the sample of companies studied.30
GE, for example, set a goal
in 2005 to grow EcomaginationSM
-related revenues to $US20 billion, and at twice the rate
of GE’s overall industrial revenue. Since the initiative’s launch, EcomaginationSM
revenues
have grown at four times the rate of GE’s overall industrial business.31
In some cases,
entire new business models have emerged from demand for more sustainable products, as
in the case of the Lighting as a Service business at Philips (see page 70 for more examples).
Promoting radical transparency Consumers are becoming increasingly interested in
knowing more about the companies they buy from and what goes into the products
they consume. Stakeholders are also exerting greater pressure on companies to disclose
information about their operating practices and supply chains, especially given that the
vast majority of companies’ environmental and social impacts occur in their supply chains.
Rather than fighting this trend, some CEOs are leveraging transparency as a powerful
competitive advantage. Patagonia’s “Footprint Chronicles,” for example, is an inter-
active online tool designed to give consumers deep insight into the company’s supply
chain, including worker headcount, gender mix, and addresses of its global factories,
textile mills, and farms. In 2014, Clorox expanded its “Ingredients Inside” program,
becoming one of the first large consumer product companies to disclose the full list
of fragrance allergens used in each of its products, a fairly bold move considering its
industry has historically been very protective of trade secrets. Transparency, however,
is not limited to products and supply chains, as it can also extend to lobbying and other
political activities. IKEA, for example, made the company’s position on climate and
energy policy clear through the release of an infographic detailing the impacts of climate
change on the company.32
30 Thomas Singer, Driving Revenue Growth through Sustainable Products and Services, The Conference Board, June
2015, p. 27.
31 Singer, Driving Revenue Growth through Sustainable Products and Services, p. 28.
32 A copy of IKEA’s infographic is available at: (www.ikea.com/ms/en_US/pdf/reports-downloads/IKEA_Group_
position_on_climate_and_energy.pdf).
27. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 27
Embracing business model transformation A handful of CEOs on the leading edge of
sustainability actually embark on a personal mission to transform their companies—and
in some cases their entire industries—to align with sustainability principles. These CEOs
recognize that the business models of the companies they lead are at risk of becoming
irrelevant in a low-carbon and resource-constrained future.33
Since for many companies
this threat is not necessarily imminent (though still significant), it takes a visionary CEO
to challenge a status quo that may be difficult to deviate from. David Steiner, CEO of
Waste Management, realized about 10 years ago that a business model dependent
on hauling customers’ trash was not sustainable, given that more and more of the
company’s customers were pursuing “zero waste” goals. This led to a refocus of Waste
Management’s business to emphasize environmental solutions and extract value from
waste. Waste Management’s revenues from “Green Services” now account for well over
half of the company’s total revenues.
Another example of business model transformation is evident in the shift of Novelis’
core business from a traditional linear model to a closed-loop model. In the following
public statement, Martens explains the role sustainability plays in driving business
model transformation:
Our intent when we established our sustainability targets two years ago
was to transcend the incremental approach by radically transforming our
company—and, in the process, lead the way in our industry. This approach
is driving changes in the way we source inputs, structure our supply chain,
make capital investments, develop our products and engage with our
customers. We are still in the early stages of our sustainability journey, with
many hurdles yet to overcome, but our efforts are already beginning to
bear fruit. I am more firmly convinced than ever that our commitment to
sustainability will be the key value driver for our company going forward.34
Visionary CEOs aim to transform not only the businesses they lead, but also entire industries.
For example, during his tenure as CEO of NRG, David Crane not only pushed the largest
independent power producer in the United States to become a leader in clean energy,
but was also very vocal in his belief that the entire energy industry needed to do more to
combat climate change. However, in the attempt to balance long-term value creation
with short-term pressures, transformational leadership can be a risky proposition. Crane’s
vision for the future of NRG made short-term investors nervous and was likely not shared
by the company’s board; he was let go at the end of 2015.
33 For more details on this topic see Gilbert S. Hedstrom, Navigating the Sustainability Transformation, The
Conference Board, January 2015.
34 “Novelis Building Sustainable Enterprise through Disruptive Innovation,” PR Newswire, October 22, 2013
(http://www.prnewswire.com/news-releases/novelis-building-sustainable-enterprise-through-disruptive-
innovation-228790911.html).
28. The Seven Pillars of Sustainability Leadership www.conferenceboard.org28
The following is an excerpt from former NRG CEO David Crane’s March 2014 letter
to shareholders, which offers an example of Crane’s leadership rhetoric, including
his embrace of business transformation and his vision of sustainability as a driver of
business opportunity:
As we forge ahead, I am mindful of the fact that the next generation of
Americans—the generation of my soon-to-be-adult children—is different from
you and I. Somehow, some way, the next generation of Americans became “all
in” in their commitment to sustainability, in every sense of the word, including
clean energy. With them, it is built into their DNA, not just “learned behavior,”
as it is for many of us.
And make no mistake about our children. They will hold all of us accountable—
true believers and climate deniers alike. The day is coming when our children
sit us down in our dotage, look us straight in the eye, with an acute sense of
betrayal and disappointment in theirs, and whisper to us, “You knew…and you
didn’t do anything about it. Why?” And for a long time, our string of excuses
has run something like this: “We didn’t have the technology…it would have
been ruinously expensive…the government didn’t make us do it…”
But now we have the technology—actually, the suite of technologies—and they
are safe, reliable and affordable as well as sustainable. They do not represent
a compromise to our ability to enjoy a modern lifestyle. They represent an
opportunity for us to do the right thing while multiplying shareholder value
through greater value-added services. And these technological solutions are
focused on the individual consumer—both businesses and individuals—so the
shameful passivity and failure to act of government is irrelevant.
The time for action is now; we have run out of time for more excuses.
You should know that I get up each day animated and motivated to lead NRG
into a transformational role in the clean energy economy by my intense desire
to have a better answer to that question when it comes from our children,
whether it comes from your children or mine: “At NRG, we did all that we
could, as fast as we could do it, and what we accomplished with our partners
and customers turned out to be quite a lot. Enough, in fact, for you and your
generation to finish the job.”
That would be a much better answer.
So let’s make it happen.
Source: Originally posted on NRG’s website. A copy of the March 27, 2014, letter is now available at: (www.greentechmedia.
com/articles/read/nrgs-david-crane-where-is-the-amazon-apple-and-google-of-the-utility-sector).
29. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 29
Reporting structure matters
There is wide variation in who ultimately is assigned responsibility for implementation of
a company’s sustainability strategy. It can be the CEO who shoulders this responsibility, or
the chief sustainability officer (CSO), or in some cases other members of senior management.
In fact, while it is growing, the number of companies with CSOs is relatively low. A report
found that among US publicly traded companies, in 2014 there were 36 professionals with
“chief sustainability officer” in their official title, up from 29 in 2011.35
Especially at companies
that are at a relatively early stage in their sustainability strategy, it is instead common for the
role of a CSO to be undertaken by individuals with other functional responsibilities, including
but not limited to EH&S, public affairs, and marketing. To wit, researchers from Harvard
Business School asked a sample of 66 respondents to identify their companies’ approach
to sustainability as one of three options: “Compliance” with regulations and securing
license to operate, “Efficiency” and focus on the bottom line, and “Innovation” and
exploitation of opportunities for growth.
Only 14 percent of companies in the “Compliance” stage had a person with responsibility
for sustainability with the title of “chief sustainability officer.” By contrast, 36 percent of
companies in the “Innovation” stage had a person responsible for sustainability with the
CSO title.36
While the wording of a title may seem trivial, it can be an important signifier
of an organization’s commitment to sustainability. In 2016, for example, 3M changed the
title of the company’s head of sustainability from vice president of EHS and sustainability
operations to chief sustainability officer, primarily as a way to further signal 3M’s
commitment to sustainability.
35 CSO Back Story II: Evolution of the Chief Sustainability Officer, Weinreb Group, 2014, p. 6.
36 Kathleen Miller and George Serafeim, Chief Sustainability Officers: Who Are They and What Do They Do?,
Harvard Business School working paper, August 20, 2014, p. 13.
30. The Seven Pillars of Sustainability Leadership www.conferenceboard.org30
Regardless of title, what is ultimately important is that this individual—if he or she is not
the CEO—have direct and frequent access to the CEO and/or the board. This reinforces
sustainability as a strategic priority and allows for discussions on the topic to be elevated
beyond the tactical. It also serves as a mechanism to provide CEOs and the board with
much-needed access to internal expertise on the subject. The reality, however, is that
most heads of sustainability do not have direct access to the CEO. In a 2016 survey by
The Conference Board of sustainability and EH&S executives, only 16 percent of respon-
dents indicated these functions report directly to the CEO, with most (63 percent)
indicating these functions report one level down from the CEO (usually the COO/
Operations).37
These figures suggest companies should take a close look at their existing
reporting relationships and evaluate whether there is a close enough link between their
head of sustainability and their CEO. This link will become increasingly important as
sustainability issues become more embedded in CEO agendas.
37 Results from a 2016 survey by The Conference Board of sustainability and EH&S executives at 43 member companies.
If EH&S and sustainability are combined,
where do they report?
Chart 7
Source: Results from a 2016 survey of members of The Conference Board Sustainability Councils and Chief EH&S Officers Council.
Sustainability reporting structure — CEO
Direct
to CEO
16.3
62.8%
One level
down from
CEO
18.6
Two levels
down from
CEO
2.3
Other
What function does sustainability report into
(if not direct report to CEO)?
Chart 8
Sustainability reporting structure — other functions
COO or
Operations
34.5%
16.4
General
Counsel
Administration,
Finance,
or HR
25.5
Other
16.4
Marketing,
R&D, or Technology
7.3
N=43 N=42
31. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 31
Chief sustainability officers who report to CEOs:
Examples from Nike and IKEA
Nike Nike created the position of VP of corporate responsibility (CR) in 1998, led by
Maria Eitel, who worked to consolidate the company’s various corporate responsibility
functions and begin drafting a strategic framework to address the corporate
responsibility issues facing the company. In 2004 Hannah Jones, the director of
CR for Europe, became Nike’s next VP of CR. Jones reported to Mark Parker, then
co-president of the Nike brand, and was also responsible for briefing the board of
directors’ Corporate Responsibility and Sustainability Committee.
In 2009 Nike’s CR team was reorganized as the Sustainable Business & Innovation (SB&I)
team, led by Jones as VP. In 2013, the SB&I team was moved into Nike’s Innovation
organization, with Jones named as chief sustainability officer and VP, Innovation
Accelerator in 2014, reporting directly to CEO Mark Parker and the president of Innovation.
Jones co-manages a number of dedicated teams with business and functional executives
to rethink materials, methods of make, products, and business models to solve complex
sustainability challenges, to develop and review policies for board approval, and to
manage the company’s sustainability approach and direction. Jones is actively involved in
the board of directors’ Corporate Responsibility and Sustainability Committee and attends
all of its meetings.
IKEA While IKEA’S sustainability strategy has evolved over the last two decades, the
head of the company’s sustainability initiatives has always reported directly to the
CEO. From the mid-1990s through 2010, IKEA’s sustainability initiatives were led by
a sustainability manager with direct reporting to the CEO. During this period, the
company viewed sustainability as primarily a compliance and development issue.
By 2011, however, sustainability had evolved to become a much more strategic
focus for the company. That year, IKEA launched “People & Planet Positive,” the
company’s 2020 sustainability strategy, which focuses largely on sustainability as
an opportunity to drive innovation and transform the business. This more strategic
focus on sustainability led to the 2011 hiring of IKEA’s first chief sustainability
officer, Steve Howard, founder and CEO of The Climate Group. Howard took on
overall responsibility for performance against IKEA’s sustainability commitments. He
reports directly to IKEA’s president and CEO, and he is the company’s first head of
sustainability to be appointed to IKEA’s nine-person executive management group,
which includes the CEO, CFO, and the heads of IKEA’s operating divisions.
32. The Seven Pillars of Sustainability Leadership www.conferenceboard.org32
Steering sustainability: The importance of committees and
external advisors
Forming steering committees can be tremendously beneficial to integrating sustainability
into an organization’s strategy.
Internal committees Sustainability committees that are chaired by the CEO or another
member of the C-suite are particularly effective. A 2014 report by Ceres and Sustainalytics
notes that about 25 percent of companies have an executive-level committee overseeing
sustainability strategy and performance.38
Below are some examples:
• Campbell Soup’s Sustainability Leadership Team was first established in 2009.
The team met every other month for seven years and focused on driving
sustainability within the business divisions and regionally. In 2015 the committee
was restructured to focus on enterprise vectors (e.g., energy/GHG, water, waste,
packaging, logistics, procurement, agriculture, and co-manufacturing), and its
composition was elevated to officer level. The committee is now run by Campbell’s
chief sustainability officer and is composed of senior executives of the company’s
largest business divisions and corporate functions, including procurement, supply
chain, research and development, engineering, and public affairs. The committee
reports an annual deep dive on sustainability operations to the audit committee
of the board of directors and briefs the CEO and other leadership quarterly.
• BASF’s Corporate Sustainability Board (CSB) is the company’s central steering
committee for sustainable development. It is chaired by a member of BASF’s
Board of Executive Directors and comprises the heads of the company’s business,
corporate, and functional units as well as heads of the regions. The CSB monitors
the implementation of BASF’s sustainability strategy and cross-divisional
initiatives, defines sustainability goals, and approves corporate position papers
on sustainability topics.
• The Siemens Sustainability Board, formed in 2009, is the central steering committee
for sustainability at the company. The committee is chaired by the chief sustainability
officer and includes four out of the seven members of Siemens’ managing board,
as well as top executives from the company’s divisions, countries, and corporate
functions. The significant representation of managing board members means that
only in exceptional situations do the committee’s initiatives require approval from
the company’s managing board. The committee meets quarterly.
• IKEA’s Sustainability Management Group helps coordinate the company’s efforts
to make key decisions on sustainability. The group is chaired by IKEA’s chief
sustainability officer and brings together sustainability managers from the main
business areas—Retail and Expansion, Range and Supply, and IKEA Industry—as
well as the heads of Policy and Compliance, Sustainability Communication, and
Sustainability Innovation. Progress against IKEA’s sustainability objectives is
reported to group management and the board of directors on a regular basis.
38 Gaining Ground: Corporate Progress on the Ceres Roadmap for Sustainability, Ceres and Sustainalytics, 2014, p. 17.
33. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 33
• Marks & Spencer (M&S) launched the company’s broad sustainability strategy—
“Plan A”—in 2007. The company’s Executive Plan A 2020 Committee oversees
the development and implementation of Plan A. The committee is chaired by
the CEO and includes all of the company’s executive directors as well as senior
directors with relevant specialist knowledge and responsibilities. The committee
meets every two months, and the CEO delivers an update on activities to the
board of directors at least once a year. In addition, M&S has an Operational Plan
A 2020 Committee that is chaired by the director of Plan A.
External advisors Independent sustainability experts who interact with senior leadership
and the board can offer a valuable perspective on a company’s sustainability strategy
and priorities. Recognizing the value this outside view can bring, a few leading companies
have established sustainability steering committees composed of external advisors.
These external committees can provide an objective perspective and subject matter
expertise, and they can help challenge and verify a company’s sustainability strategy.
Following are some examples of companies’ external sustainability committees:
• Walmart’s Sustainable Value Networks bring together supplier companies,
academia, government, and nongovernmental organizations to explore sustain-
ability challenges and develop solutions.
• M&S Sustainable Retail Advisory Board meets every six months to provide
guidance and insights and to challenge the company to further improve its
sustainability performance. The advisory board includes renowned and respected
external sustainability experts and is jointly chaired by the company’s CEO and
the founding director of Forum for the Future.
• In 2007 Kimberly-Clark formed an independent Sustainability Advisory Board
(SAB) to provide the company’s Global Sustainability Team and Global Strategic
Leadership Team with guidance on sustainability issues. The SAB is composed
of six external thought leaders who are selected based on their sustainability
competencies and experience.
• The Unilever Sustainable Living Plan Council is a group of six external specialists
in corporate responsibility and sustainability who meet twice a year to help guide
the development of the company’s sustainability strategy.
• Dow Chemical’s Sustainability External Advisory Council (SEAC) was formed
in 1992 to introduce a diverse outside-in perspective on environment, health
and safety, and sustainability issues for the company. The council is composed
of thought leaders from around the world and is chaired by the corporate vice
president and chief sustainability officer. SEAC meetings usually take place over
two and a half days, addressing agenda items that have been suggested by Dow
and the council.39
39 NB: A merger between DuPont and Dow Chemical is expected to be completed by the second half of 2016.
The combined company, DowDuPont, is expected to be separated into three independent, publicly traded
companies.
34. The Seven Pillars of Sustainability Leadership www.conferenceboard.org34
Senior leadership engages with employees on sustainability
Ideally, companies that have a sustainability champion among senior management also
have strong systems in place to engage the company’s employees on sustainability.
A CEO’s vision for sustainability is worth little without support and enthusiasm from
employees, which makes having the proper communication and engagement channels
an important element of sustainability leadership. The good news is the number of
companies actively engaging employees on sustainability issues appears to be increasing.
In a sample of large US companies studied by Ceres and Sustainalytics, 40 percent had
programs in place to engage employees on sustainability, up from 30 percent in 2012.40
The extent of engagement, however, appears to vary significantly, with only a few
companies offering company-wide engagement. The following company examples offer
some best practices, including the value of having senior leadership drive engagement
efforts and the importance of giving employees a forum to discuss and learn about their
company’s sustainability strategy:
• The CEO of Baxter International discusses the company’s sustainability strategy
during quarterly all-employee webcasts. The company also has a sustainability
intranet site to communicate with and engage employees on Baxter’s sustain-
ability initiatives.41
• In 2013 Staples created the position of chief culture officer, which includes
responsibility for driving employee engagement and championing the company’s
sustainability commitments. Quarterly management forums also provide an
opportunity for employees to discuss sustainability issues with management
and engage on the company’s sustainability initiatives.42
• Johnson & Johnson places a strong focus on engaging employees on the
company’s sustainability initiatives and rewarding them for their contributions
to sustainability innovation. For example, teams who receive Earthwards®
recognition (recognition for the company’s most broadly sustainable products)
are publicly congratulated and rewarded for their innovations by Johnson &
Johnson leadership through established employee recognition programs. As a
result, the company increased internal awareness of the Earthwards®
process
from 7 percent in 2012 to 24 percent in 2014 and increased the percentage of
employees that agree that Earthwards®
offers value to Johnson & Johnson’s
customers from 45 percent to 74 percent.43
40 Gaining Ground, Ceres and Sustainalytics, p. 7.
41 Gaining Ground, p. 69.
42 Gaining Ground, p. 69.
43 Singer, Driving Revenue Growth through Sustainable Products and Services, p. 70.
35. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 35
Ultimately companies need to tailor their engagement strategies to their own corporate
cultures. Regardless of the specific engagement mechanisms they use, companies need
to begin by ensuring employees view senior leadership as advocates for sustainability.
The reality is that typically employees do not consider senior management to be
the primary advocate for sustainability.44
While grassroots sustainability initiatives
are important and powerful, they can often be met by management with resistance,
reluctance, and skepticism. When sustainability leadership and enthusiasm comes from
the top, a signal is sent to employees that these initiatives are important—opening the
door for employees to rally behind and embrace a company’s sustainability strategy.
44 The State of Employee Engagement in Sustainability and CSR, WeSpire, June 2014, p. 6.
IN SUMMARY
• Sustainability issues are making their way into CEO agendas, and CEOs are
increasingly identifying sustainability as a top business challenge.
• Support and engagement from the CEO and senior management are crucial
to the success of a company’s sustainability strategy.
— Companies should consider establishing a direct reporting link between
their head of sustainability and the CEO and/or ensure the head of
sustainability has regular access to the board.
— Companies should establish a sustainability steering committee, chaired
by the CEO or a member of the C-suite, to help implement sustainability
strategy. In addition, an external sustainability committee composed
of advisors can provide additional subject matter expertise and an
objective perspective.
• Senior leadership should actively engage employees on the company’s
sustainability strategy and provide a forum for employees to discuss the
company’s sustainability initiatives.
36. The Seven Pillars of Sustainability Leadership www.conferenceboard.org36
III. Sustainability is embedded
in strategic planning
Companies that have not integrated sustainability into strategic planning may be putting
their businesses at risk. Changing consumer demands and emerging global trends
(including many sustainability-related risks, such as natural resource scarcities and climate
risks) are placing increasing pressure on businesses to prepare for uncertainties. In its
latest review of global risks, the World Economic Forum identifies water crises, extreme
weather events, and climate change among the top five risks in terms of impact and
likelihood. In fact, “failure of climate change mitigation and adaptation” was ranked the
top global risk in terms of impact (see Exhibit 2 on page 37).45
A survey of 365 expert
economists indicated that more than three-quarters of respondents believe climate
change will have a long-term, negative effect on the growth rate of the global economy.46
Further, they predict a global GDP loss of about 10 percent by 2090 under a “business
as usual” scenario where global carbon emissions remain unchecked.47
Companies that
swiftly acknowledge and proactively manage these risks will be better prepared for this
future scenario. But preparing becomes a difficult task when sustainability issues are
absent from discussions of business strategy. To remain competitive, companies need to
fully integrate sustainability into their strategic planning process.
The good news is many companies have developed a business case for sustainability
and are actively working on integrating it into their strategy. The number of companies
without a sustainability business case is shrinking, according to results from a global
survey by MIT Sloan Management Review. The survey found that between 2009 and 2014,
the percentage of companies that had not created a sustainability business case dropped
from 42 percent to 23 percent.48
45 The Global Risks Report 2016, World Economic Forum, Switzerland, p. 10.
46 Expert Consensus on the Economics of Climate Change, Institute for Policy Integrity at New York University
School of Law, December 2015, p. 15.
47 Expert Consensus on the Economics of Climate Change, p. 21.
48 Kiron et al., “Joining Forces,” MIT Sloan Management Review, p. 6.
37. 3.5 4.0 4.5 5.0 5.5
4.0
4.5
5.0
4.87
average
4.76
average
Data fraud
or theft
Asset bubble
Deflation
Failure of financial
mechanism or institution
Failure of critical
infrastructure
Fiscal crises
Unemployment or
underemployment
Illicit trade
Unmanageable inflation
Extreme weather events
Natural catastrophes
Man-made environmental
catastrophes
Failure of
national governance
Interstate conflict
Terrorist attacks
State collapse or crisis
Failure of urban planning
Food crises
Profound social instability
Water crises
Adverse consequences of
technological advances
Cyberattacks
Large-scale involuntary migration
Extreme weather events
Failure of climate-change mitigation and adaptation
Interstate conflict
Natural catastrophes
Failure of national governance
Unemployment or underemployment
Data fraud or theft
Water crises
Illicit trade
Failure of climate-change mitigation and adaptation
Weapons of mass destruction
Water crises
Large-scale involuntary migration
Energy price shock
Biodiversity loss and ecosystem collapse
Fiscal crises
Spread of infectious diseases
Asset bubble
Profound social instability
Economic
Environmental
Geopolitical
Societal
Technological
Top 10 risks in terms of
Likelihood
Top 10 risks in terms of
Impact
Categories
Likelihood
Impact
Weapons of mass destruction
Spread of infectious disease
Critical information
infrastructure breakdown
Energy price shock
Biodiversity loss and
ecosystem collapse
Large-scale involuntary
migration
Failure of climate-change
mitigation and adaption
Respondents were asked to rate the impact
and likelihood of each risk on a scale of 1 to 7
and in the context of a 10-year timeframe.World Economic Forum Global Risks Landscape
Exhibit 2
Source: The Global Risks Report 2016, World Economic Forum, Switzerland, p. 3.
39. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 39
This shift is significant as it points to a transition in how companies view sustainability—
increasingly less as operational and more as strategic. Whereas once the primary drivers
for sustainability for many companies were related to cost reductions and efficiencies, this
is decidedly less so the case now. For example, respondents to a survey by BSR/GlobeScan
cited the effect on the company’s reputation as the most important driver of sustainability
efforts, followed by market growth opportunities. Budget and cost reductions, notably,
were at the bottom of the list.50
50 The State of Sustainable Business 2015 Annual Results, BSR/GlobeScan, September 2015, p. 36.
Drivers of sustainability efforts
Chart 10
Source: The State of Sustainable Business 2015 Annual Results, BSR/GlobeScan, September 2015, p. 36
Percentage of company-level respondents identifying issue as a top-three driver, combined (N=196).
Budget/cost reduction
CEO interest
Investor interest
Consumer demand
Product and process innovation
Talent recruitment and employee
engagement and retention
Regulatory requirements
Market growth opportunities
Operational risks/benefits
Reputational risks/benefits
1st Driver 2nd Driver 3rd Driver
27% 21 19
13 18 12
16 11 11
8 14 14
2 7 14
6 6 10
10 7 4
4 9 5
10 2 5
3 6 8
40. The Seven Pillars of Sustainability Leadership www.conferenceboard.org40
Integrating sustainability into the business is easier when sustainability is seen as
strategic. In the same BSR/GlobeScan survey, the majority of respondents (54 percent)
indicated sustainability is at least fairly well integrated into their core business. While
these results are promising, there is still ample room for improvement, as over a third of
respondents noted sustainability was not very well integrated or not integrated at all.51
Good sustainability management practices can increase a company’s revenues by up to
20 percent and can enhance a company’s brand and reputational value by 11 percent.52
Aligning sustainability with strategic planning can help companies ensure growth oppor-
tunities are recognized early and that physical and reputational risks are managed
properly. Siemens, for example, includes the company’s Environmental Portfolio as one
of the focus areas of the “One Siemens Management Model,” the company’s strategic
framework for sustainable value creation.
“Sustainability and Citizenship” is one of three priorities in the
One Siemens Management Model
Siemens is a German industrial conglomerate and one of the world’s largest technology
companies, with 2015 revenue of €75.6 billion. The “One Siemens Management Model” is an
integral part of Siemens’ strategic framework “Vision 2020” for sustainable value creation.
This management model was launched in its current form in 2014 and consists of three layers:
a set of balanced financial performance indicators; the operating system and corporate
memory; and the foundation of “sustainability and citizenship,” which includes 12 principles
along the dimensions of people, planet, and profit. These 12 principles are the evolution of
Siemens’ initial sustainability program defined in 2009.
While the framework provides the guiding principles for integrating sustainability
into the company’s strategy, the following four elements are key to helping Siemens
implement this integration:
• Siemens’ Sustainability Office is part of the corporate strategy team.
• Siemens has a dedicated “division sustainability manager” in the strategy
function of each of the company’s 10 divisions.
• Siemens has a dedicated “country sustainability manager” generally in the
strategy function of each of the company’s approximately 30 lead countries.
• Sustainable business practices are led by the corporate functions; sustainability
sits at the corporate level and is also copied into the countries and divisions.
(Continued on page 41)
51 The State of Sustainable Business 2015 Annual Results, p. 31.
52 Project ROI: Defining the Competitive and Financial Advantages of Corporate Responsibility and Sustainability,
IO Sustainability and Babson College, 2015, p. 17.
41. www.conferenceboard.org The Seven Pillars of Sustainability Leadership 41
To drive best practices throughout the company, Siemens holds an annual Sustainability Summit that
brings together sustainability managers from each of the company’s divisions, countries, and functions.
Exhibit 3
Source: “Additional Sustainability information to the Siemens Annual Report 2014,” Siemens, p. 6,
http://www.siemens.com/investor/pool/en/investor_relations/downloadcenter/siemens_ar2014_sustainability_information.pdf
We contribute to our customers’ competitiveness
with our products, solutions and services.
V
We partner with our customers to identify and
develop sustainability related business opportunities.
V
We operate an efficient and resilient supply chain
through supplier code of conduct, risk management,
and capacity building.
V
We proactively engage with our stakeholders to
manage project and reputational risks and identify
business relevant trends.
V
We adhere to the highest compliance and anti-
corruption standards and promote integrity via
the Siemens Integrity Initiative.
V
PROFIT
PLANET
We enable our customers to increase energy
efficiency, save resources and reduce carbon
emissions.
V
We develop or products, solutions and services
based on a life-cycle perspective and sound eco-
design standards.
V
We minimize the environmental impacts of
our own operations by applying environmental
management programs.
V
We contribute to the sustainable development
of societies with our portfolio, local operations,
and thought leadership.
V
We foster long-term relationships with local
societies through Corporate Citizenship projects
jointly with partners.
V
We live a zero-harm culture and promote the
health of our employees.
V
We live a culture of leadership based on common
values, innovation mindset, people orientation
and diversity.
V
PEOPLE
Siemens’ 12 principles of sustainability and citizenship
42. The Seven Pillars of Sustainability Leadership www.conferenceboard.org42
The top strategies for meeting the sustainability challenge:
Insights from global CEOs
The latest edition of The Conference Board CEO Challenge®
survey asks CEOs,
presidents, and chairmen across the globe to identify the top strategies they intend
to use to meet six key business challenges, one of which is sustainability (see Exhibit
4 on page 43). Results from the survey indicate CEOs are taking a broad view of what
sustainability means for their organizations—and the potential risks involved if they fail
to respond to evolving stakeholder demands for more responsible business practices.
While many companies continue to separate sustainability issues from their risk profile,
which creates gaps in effective long-term strategic planning, respondents to this year’s
survey cite incorporate sustainability into company risk management strategy as one of
their top strategies for meeting the sustainability challenge.
While input from more than 80 senior sustainability executives points to board
engagement on sustainability issues as the business practice most indicative of
leadership in sustainability, CEOs appear to be missing the mark: When asked about
their top strategies for meeting the sustainability challenge, CEOs ranked “strengthen
board oversight of sustainability issues” last.