How can boards convert sustainability from a wish to a winning reality?

A more robust articulation of long-term value potential, backed by a credible business case, is required to build support for sustainability investments that would increase market share, reduce cost of capital, boost net promoter scores and increase employee engagement and productivity. 

Sustainability will always come under close scrutiny when it comes to the value case. While companies might struggle to articulate a business case for major digital investments, sustainability is still perceived as delivering a “greater good.” A digital investment, in contrast, is perceived as directly benefiting the company and attracts less attention if there is no robust business case.

Boards play a critical role in shifting this thinking and some of the misconceptions that are still attached to putting long-term value frameworks in place. Those that resist the development of metrics point to complexity or a lack of data. However, this can be overcome if boards set the expectation that it can and must be done. In short, boards need to reinforce a company culture where sustainability is seen as mission-critical.

When a policy or regulatory directive is introduced, companies face a choice: seek to unlock the strategic advantage or aim for compliance (and not much more).

A bolder approach offers several advantages:

• It allows an organization to look at the investment required to achieve compliance and understand where it can build on that investment to unlock an advantage and drive innovation.
• In the short term, it can streamline the organization’s response to regulations, as boards will be clear about what really matters within a directive. And, in the long term, boards need to be thinking about the business implications if climate change is insufficiently checked, including increased intervention by policymakers.  

For example, Leaders are taking a more proactive approach to the EU Green Deal and in responding to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD).

Those taking a bolder approach to policy will have assessed their current strategy against the funding and incentives that are available. They will have put in place the capabilities they need – including, potentially, a “Green Deal Officer” – and have team members that offer public sector experience and understanding of the laws, language, culture and stakeholder frameworks that govern public-sector decision-making. Leaning into sustainability policy enables companies to respond to a fast-changing policy and regulatory environment.

Similarly, bold organizations rethink their approach to sustainability reporting. They develop a coherent and compelling long-term value narrative that utilizes “investor-grade” non-financial data and disclosures. They are reshaping their controls, assurance processes, and technologies for an enhanced approach to reporting. They will have defined a central role for the CFO in sustainability reporting and appointed roles such as “ESG Controller.”

The EU Green Deal: incentives and subsidies

The Green Deal, aimed at making member states climate-neutral by 2050, is a comprehensive fiscal policy initiative, embracing grants, tax exemptions, loans and financial instruments. Overall, Leaders are more prepared for it.

AI has significant potential to create positive sustainability outcomes and accelerate a company’s sustainability transformation, but the opportunities must be balanced against the challenges.

While it is inevitable that AI will change the world of work, there are two paths the technology can take. One focuses on taking over the tasks that humans do: automating tasks – such as data collection or compliance – which could lead to a decline in employment. The other focuses on augmenting what people do, focusing on AI’s potential to create new tasks and arming people with better tools to do their job.

The same dynamic plays out in the environmental space. AI can analyze vast datasets to provide insights into climate change, helping in predictive modeling and informing better environmental policies. But advanced AI systems, especially large data centers and servers required for machine learning tasks, also consume significant amounts of energy, contributing to higher carbon footprints.

A majority of respondents recognize the difficult balancing act that must be struck when it comes to reconciling the business opportunity of Generative AI (GenAI) with environmental, societal and ethical challenges:

• 61% say “AI offers a significant opportunity for driving long-term value, from creating new business models and revenue streams to transforming how work is done.”
• But 64% also say “the key challenge of GenAI is driving transformation and growth while ensuring ethical and societal implications do not undermine confidence in our organization.”
   

Responsible technology governance key to balancing opportunity and risk

Building stakeholders’ confidence in AI as a driver of sustainable transformation will require effective and responsible technology governance. However, AI regulations – such as the EU AI Act – are still at an early stage. This raises the risk that too many boards are taking a reactive approach as they wait for more detailed regulatory and policy guidance.

Today, most organizations have made progress in putting in place technology governance for AI. However, not many have a robust approach in place.