At the intersection of sustainability and change: How boards are evolving to meet the climate challenge
- World Climate Foundation
- 5 hours ago
- 4 min read
As the number of boardroom priorities grows, robust governance and proactive risk management are emerging as essential for navigating the increasing challenges of sustainability.
Board members today are faced with new, complex priorities, many of which are driven by external events, creating an interconnected web of demands on top of traditional responsibilities. High on the agenda are climate change and sustainability—topics that have become integral to corporate value and risk management. As stakeholder expectations intensify around sustainability, and regulatory frameworks evolve to address it, directors are having to balance business priorities with mounting societal imperatives.
This blog post reflects insights from a recent report from Heidrick & Struggles, BCG, and the INSEAD Centre for Corporate Governance, Boards and Society: How Boards Are Evolving to Meet Challenges from Sustainability to Geopolitical Volatility. The report, based on a survey of corporate directors around the world, highlights the progress, challenges, and strategies that boards are deploying to lead the charge on climate resilience.
Governance evolving amid change
The push from investors, customers, employees, and other stakeholders to embrace sustainability has been steady for the past several years. Our research found that boards have made meaningful progress in this area. For example, in our 2023 survey in this series, we saw that one-quarter of directors lacked confidence in their company’s understanding of how sustainability would impact value creation. This year, that figure stands at just 9%. Similarly, 46% of directors said their company lacked a plan to turn sustainability shocks into competitive advantage, a figure that fell to 27% .
It is likely that efforts to enhance board expertise have contributed to these improvements: 74% of respondents indicated that sustainability is a formal part of the board’s competency matrix this year.
Nonetheless, the sheer number of issues confronting boards, along with the rapid pace of change—and the fact that their traditional responsibilities haven’t gone away—is increasing the pressure on directors. Many still grapple with the challenge of moving beyond reactive risk management to proactive climate resilience. Indeed, 38% of respondents said that other important issues crowd out discussion of external shocks and disruptions.
Board education and a rebalance of board profiles to bolster expertise
When directors were asked what boards are doing to adapt to external disruptions, particularly sustainability, GenAI, and trade and geopolitics, the top three actions cited included ongoing board education, engaging with independent experts, and updating the competency matrix.
At a roundtable we convened in Southeast Asia recently, board competency in particular was a major topic. One participant contended that boards need to be refreshed to balance conventional board profiles with individuals who have specific sustainability experience and represent different perspectives. This director, who serves on the board of a construction materials company, noted that adding younger board members would bring different insights on issues such as sustainability and GenAI: “You will see changes when you see rejuvenation of the board with directors who are younger and come from different backgrounds.”
Other research Heidrick & Struggles conducted on boards and CEOs in 2023 found that 43% of directors had little or no confidence that their board evaluation and refreshment process positioned the organization well for the future, and considerations about rebalancing board profiles were cited as one of the reasons.
Enhanced risk management to help spot opportunities
Directors clearly understand the heightened risks facing their companies. Over 60% of directors reported that their board is enhancing risk management, making it the top governance shift. Boards of large companies are leaning in on risk management even more, with about 78% citing it as an important change in governance.
But risk management is still too often a reactive process that primarily looks at how known trends are impacting companies today. “In a lot of companies, enterprise risk management is a side pocket,” a director at a private equity firm in South America explained. “They produce great reports, but they don’t drive decisions.”
Companies need to become more proactive, expanding their risk management view of the many possible changes and impacts that the business could encounter in the future.
Actions boards can consider to build resilience
Boards can take various steps to broaden their perspective on sustainability and climate impact.
First, they can look externally for insights and inspiration. One of our recent surveys indicated that while boards are beginning to do this across a range of risks and opportunities, there is room for improvement. Nearly 70% of directors said they were spending more time with company executives discussing risk management, but only 35% reflected they were connecting with external experts on risk. And just 28% reported that their board was adding members with specific expertise in the risks facing the company.
Second, boards can expand the use of scenario planning to gain foresight on potential trends, including black swan events that have a high impact. A full 44% of respondents to our joint survey with BCG and INSEAD reported that their board is increasingly conducting scenario planning—done well, scenario planning can aid boards not only in managing risk but also in identifying compelling new business opportunities.
As boards assess each possible scenario, questions they ask could include:
Which capabilities do their company and its leaders need to succeed?
What indicators would signal the likelihood of a certain scenario becoming a reality?
What specific actions should their company take in this scenario?
Which of those actions are no-regrets moves?
Scenario planning needs to take an integrated view of how changes could be linked—for example, how trade disruptions could impact company decarbonization efforts, or how advances in GenAI could impact trade and geopolitics. Our roundtable discussions revealed that such integrated scenario planning presently is more the exception than the rule.
Ultimately, boards that understand how changing dynamics could materially affect their business are more effective on a number of fronts, including ensuring that their company is complying with an increasingly complex web of regulatory requirements. It’s not that easy, though: A director serving on the board of a European food company noted that the task of fully complying with escalating reporting and regulatory requirements related to sustainability is a difficult one. He explained that some boards think they have fully addressed the new regulations, but he believes that they “are either overseeing an unusually straightforward company or have simply not grasped what the regulations demand.”
The Boards and Society report makes clear that real progress is underway, with more boards prioritizing sustainability in their competency frameworks and understanding its impact on value creation. Yet, climate leadership demands courage and foresight. As climate disruptions intensify, and sustainability demands increase, boards will need to transform further on this and the full range of risks they face: move from reactive risk management to integrated scenario planning, actively seeking out diverse expertise, and refreshing their makeup to reflect the realities of a climate-responsive future.