Better boards for a better world: the successful board and CEO must focus on sustainability--an effort that should be supported by an ably qualified board committee.

• Author: Korngold, Alice
• Position: CORPORATE RESPONSIBILITY

Social, economic, and environmental forces present the most formidable threats and the greatest opportunities for your company to grow shareholder value in the 21st century. Corporations in the consumer, information technology, industrial, materials, and energy sectors are at risk due to the increasing loss and degradation of natural resources. Companies may face labor shortages, or resistance from communities and stakeholders that can hamper operations, increase costs, and reduce output. On the flip side, businesses in all sectors, including financial, can mitigate risks, reduce costs, and increase profits by helping to solve the world's most daunting problems, such as education and workforce development, gender inequality, ecosystems loss, food insecurity, health care needs, and human rights abuses.

A company's prosperity depends on the board of directors, together with the CEO, envisioning the company's greatest potential in the context of the world's most pressing problems. The successful board and CEO must focus on sustainability and corporate responsibility. This effort should be supported by a board committee.

What's driving corporate responsibility?

Your company needs to care about sustainability and corporate responsibility because these are important to investors, consumers, and employees. "The world of investment is changing: asset owners and managers are becoming increasingly aware of the potential risk and value impact of environmental, social, and governance (ESG) factors, and their potential effect on an investment profile," advises MSCI, a leading provider of investment decision support tools to over 6,000 clients worldwide, ranging from large pension plans to boutique hedge funds.

When it comes to consumers, Nielsen reports that 55% will pay more for products and services provided by companies that are committed to positive social and environmental impact. The propensity to buy socially responsible brands is strongest in emerging markets, where 3 billion people will enter the middle class by 2020. "This [consumer] behavior is on the rise and it provides opportunities for meaningful impact in our communities, in addition to helping to grow share for brands," according to Nielsen.

Evidence also shows that employees are motivated to perform at higher levels for companies that demonstrate their commitment to improving the communities where they live and work. Socially responsible businesses are at an advantage in recruiting and retaining the most desirable employees.

Companies recognize the importance of having board committees for audit, governance/ nominating, and compensation. Yet, even though sustainability forces will drive shareholder value, research by Harvard Business School Professor Lynn Paine finds only 10% of U.S. public company boards have a committee dedicated solely to corporate responsibility or sustainability ("CR committees"). And only 27% out of 613 of the largest global corporations studied by environmental research organizations Ceres and Sustainalytics have a board committee with formal oversight...