Establishing and Running an Effective Sustainability Committee: Insights from the CGI

The rise of sustainability as an important business driver has prompted many organisations to re-evaluate their governance structures, with sustainability committees (SCs) becoming an increasingly common feature at the board level. The Chartered Governance Institute (CGI) has published a timely report on SCs, drawing from interviews with governance professionals across a range of sectors. 

The report examines the practical workings of SCs within an organisation and provides suggestions for how to maximise their effectiveness, for organisations that choose to have them. We have set out an overview of the CGI’s most impactful insights below. 

Why having an SC can be important

Many companies recognise the importance of sustainability: 57% of the CGI’s interviewees state that they consider sustainability issues to be ‘central to business’. The breadth and complexity of subjects that companies are expected to grapple with is expanding rapidly, with each of the ‘E’, ‘S’ and ‘G’ components of ESG encompassing a wide range of potential issues. Boards may struggle to cover the full suite of ESG topics in adequate depth, given the specialist input needed and the need to protect board time for considering overall strategy. These factors have been the trigger for some companies to set up an SC. 

When run effectively, an SC can bolster a company’s reputation, develop leadership and expertise in sustainability, and enhance collaboration across a business, given the potential for links between issues dealt with by the SC and other committees. Of course, some organisations may opt to integrate sustainability into their existing committee structures rather than having a standalone SC, and rely on strong coordination between committees to achieve similar, if potentially more limited, results in many cases.

Setting up an SC for success

The CGI stresses that the name of an SC can significantly impact its remit and stakeholder perceptions. Picking a name carefully can help to ensure that the SC’s mandate is clear, minimising the risk of third parties mistakenly assuming that ‘sustainability’ relates just to environmental sustainability, or to financial sustainability. A company may consider establishing multiple committees with more specialised names to help clarify each committee’s focus and ensure that roles are effectively divided across different sectors. 

There is no one-size-fits-all approach to structuring an SC, and companies should consider how to integrate a board-level committee within their existing governance frameworks, along with how to enable the SC to work harmoniously and efficiently with management and operational teams, whose support is often essential. 

In terms of membership, while the CGI recommends that the majority of members should be non-executive directors (NEDs), it recognises that some executive membership can help secure the SC’s reputation internally. Options for the structure of the SC could include a full-board committee, a NED committee with standing invitations to key executive members, or a board sub-committee with a mix of executive directors and NEDs. In addition, the CGI recommends that an SC should have at least three members, with any more than eight members rendering the committee unwieldy. 

Top tips from the CGI:

1. Motivations and aims: Clearly define the SC’s goals and the motivations behind its establishment. This helps to align the SC’s work with the company’s broader sustainability strategy.
2. Consider the wider governance structure: Integrate the SC within the existing governance framework, making sure that it dovetails with existing sustainability-related teams working at different levels of the business, to avoid overlaps and ensure cohesive decision-making.
3. Distinguish its role: Avoid duplication of work by clearly distinguishing the SC’s remit from that of other committees. The SC’s name should also reflect its scope, as mentioned above.
4. Terms of reference: Establish clear terms of reference that define the SC’s responsibilities, authority, and reporting lines, and review them on a regular basis.
5. Accountability: Define specific roles and responsibilities within the SC to streamline operations and enhance accountability.
6. Authority: Specify the SC’s decision-making powers and budgetary control.

Potential pitfalls and how to avoid them

Poor management of an SC can quickly convert its advantages into negative impacts. For example, insufficient consideration of how the SC fits into the wider governance framework risks the SC becoming siloed, while insufficient board oversight can create the risk of over-reliance on a few ‘expert’ committee members. Perhaps at the very worst, there is a risk of the SC being considered tokenistic, or as an act of greenwashing, by stakeholders. Active board oversight can help to address these issues.

The SC should also regularly review and adapt its remit and strategies in response to emerging trends and challenges. It is possible that, if certain elements of sustainability become more business critical, those elements may need to become the responsibility of the full board once again. 

A key way of achieving success is to ensure that the SC’s members are sufficiently skilled. A skilled SC has a deep understanding of ESG data, metrics and reporting, knows how to draw on expertise in wider parts of the business, has a deep understanding of the business, and can scan the horizon for emerging trends. 

This can be difficult to achieve in practice, however. The CGI’s report highlights a recent survey which found that only 29% of companies interviewed believe they have sufficient skills within the business to fulfil the SC’s responsibilities. Key challenges identified were, in order of significance, (i) that ESG and sustainability are not considered as business-critical as other, more pressing issues, (ii) it being difficult to act on the outcomes of discussions relating to sustainability, (iii) a lack of understanding of the issues at hand, and (iv) over-reliance on external advice. 

To address this, companies could include sustainability in assessments of skills gaps and when making succession plans or looking to hire new directors, and invest in upskilling the board and management.

Conclusion

The CGI report highlights the growing importance of SCs in modern corporate governance. However, their success depends on careful planning, clear definitions of roles and responsibilities, and the right mix of skills and expertise among members. Following the CGI’s insights can help companies to navigate the complexities of sustainability governance and drive meaningful progress within their organisations, but it is important to remember that no one-size-fits-all – each company will need to consider carefully what form of sustainability governance works best for them.