Social and environmental expectations are reshaping board governance
Promoting a just, sustainable and prosperous society
For more information about environmental and social governance and other topics related to business ethics and responsible leadership, and to learn about upcoming events and webinars, visit the Peter P. Dhillon Centre for Business Ethics.
The business world is at a critical juncture where movements, trends and events unfolding outside its walls are dramatically rewriting the rules within them.
Public reaction to institutionalized racism, climate change, COVID-19 and other social and environmental issues are compelling business leaders to make changes and move in new directions.
Engaging with the business community, policy makers and the public to advance discussions around ethical leadership and responsible business is one of the main functions of the Peter P. Dhillon Centre for Business Ethics at UBC Sauder. Five thought leaders affiliated with the centre were recently invited to share their perspectives at an international conference about board governance.
The online event, titled, “Governance in the new decade: the rise of the boardroom ESG”, brought together board members, subject-area experts and business practitioners who spent the day in panel discussions. Following the event, the guest speakers summarized the key points of their discussions and it’s clear, ESG is a growing priority for Canadian businesses.
Board Director, Peter P. Dhillon Centre for Business Ethics
“My panel discussed ESG Governance and the tools and practises needed to foster organizational success. ESG has evolved from simply being a means to avoid risk and ensure compliance with government and regulatory rules. Over time, it's become a lynchpin to developing a successful company — being a lens through which a company develops its business strategy and evaluates opportunities. Key stakeholders, including employees, consumers, and investors understand that the elements of ESG are critical to developing a sustainable product and business.
The ongoing discourse on racial and gender equity is an important fuel that can drive changes within boardrooms and set measurable goals and expectations. Business leaders must take very seriously the broader area of corporate culture. Rules and regulations around gender and racial equity are good and needed, but the real traction takes place when the very culture of a company demands equity and has a self-reflective response to call out variations from the objective and commitments. To accomplish this, the company must define the desired culture in concrete and aspirational language, and then identify the metrics that track progress towards this desired culture. And the Board's responsibility is to hold management responsible.
Pragmatically, these metrics must be audited to the same level as financial statements and generate the same amount of discussion as shortfalls in sales or profit numbers do. That's because racial and gender equity will drive sustainable business results, just like a great new product or a major acquisition.”
Kim Baird (Kwuntiltunnat)
Member of Tsawwassen First Nation, incoming Chancellor at Kwantlen Polytechnic University, and Advisory Board member for the Peter P. Dhillon Centre for Business Ethics
“In my panel, I discussed the issues pertaining to reconciliation of Indigenous rights in Canada, as well as diversity and inclusiveness in boardrooms. Organizations need to think about how to tackle these issues at the top from a governance perspective — and organizations should consistently initiate, monitor, and measure progress on these issues.
In Canada, reflecting Indigenous reconciliation at the organizational level is the focal point of these conversations. It's imperative for people to continue to uphold a commitment to honoring the recommendations of the Truth and Reconciliation Committee (TRC), and also the principles behind the United Nations Declaration on the Rights of Indigenous Peoples. Allyship of civil society and corporate Canada will be integral for reconciliation to be reached in Canada. And there's a long way to go for that to be achieved.
Although some companies have very sophisticated processes in place to look at reconciliation, many haven't started their journey. It will take some time to get everyone on the same page on these issues. It's important that everyone contribute to this issue by educating themselves, educating their boards and staff, and by convening opportunities that bring education on these issues to wider audiences.
That said, there are reasons to be optimistic. Many business leaders are starting down a path that will lead to not only better companies and organizations, but will also lead to a better country. We are at the beginning of some exciting changes and I look forward to seeing how the next decade unfolds.”
The climate emergency
UBC Sauder Distinguished Scholar of the Peter P. Dhillon Centre for Business Ethics
“Let's focus on climate change, where we need unprecedented shifts at the boardroom level to alter the trajectory of where we are headed. Courts in Canada have given judicial notice that climate change is happening so you do not need to prove that climate change exists. Boards are obliged to consider climate-related risk and the principles underpinning Environmental, Social and Governance (ESG) criteria need to be baked into our regulatory systems and at the corporate level.
Commitment towards ESG principles needs to be less of a discretionary exercise for good boards, and more a mandatory one that all corporations need to adopt. In Canada, the board’s fiduciary duties are to the corporation, viewed as a good corporate citizen. It is critical that boards do not lose sight of the organization's effects on its broader stakeholders, including their communities and the environment, and be cognizant of the legal, regulatory, reputational, and climate-related risks that quickly evolving.
The future is both daunting and bright. We are watching the next generation expect more from their institutions, and we are training the next generation of lawyers who have grown up under a climate emergency and now a global pandemic. To overcome some of the formidable challenges facing humanity, we need to learn how to reject and discard old ideas. Now is a great time for unlearning and relearning the fundamentals of corporate legal thinking so we can keep the world inhabitable and sustainable for future generations.”
Associate at McMillan LLP and guest speaker for the Peter P. Dhillon Centre for Business Ethics
“My talk in the panel highlighted two key messages: first, that climate risk disclosure is not a check-the-box-exercise that can be satisfied with a generic risk factor. Organizations have to ensure that public disclosure meaningfully reflects their estimate of climate-related regulatory, physical, and operational trends and uncertainties. Second, climate governance is part of a healthy corporate governance regime. It is an opportunity to review existing governance mechanisms to ensure that they are working appropriately and address any shortcomings that inhibit flow of information to and oversight by the board on climate related issues.
Today, there is a recognition that committing to ESG principles makes a compelling business case. Firms with better climate governance mechanisms and more sustainable business models are finding it easier to attract capital. Underlying this shift is increasing evidence that a company’s environmental, social, and governance (ESG) performance has an impact on its long-term financial success.
Boardrooms can take concrete steps to champion ESG and Climate Governance at all levels of their organizations. Effective organizations ensure that the directors and management teams are provided with adequate time, data, and expertise to sufficiently understand climate-related risks and opportunities to make informative decisions.
I'm optimistic about where boardrooms are heading — the very fact we are having these conversations shows that climate governance has evolved into a mainstream boardroom issue. The capital markets ecosystem including investors, regulators, and stakeholders are all championing sustainability. And all of this shows a positive trendline.”
Opportunities in ESG
Executive Director of the Peter P. Dhillon Centre for Business Ethics
“We're in a time when the business community is increasingly recognizing the importance of ESG considerations — and they're spurring a conversation on the urgent steps that need to be taken. Board directors need to understand how ESG issues impact the corporate and financial assets they’re stewards of. They need to provide oversight on corporate strategies to mitigate ESG risks and seize ESG opportunities.
Leaders are not just asking themselves about a new set of risks, but about a new set of responsibilities as well. My prediction is that it won’t just be the nature of discussion in boardrooms that will change, but also who is actually at the table. I hope that sooner than later we’ll see as the norm boards that are half female and half BIPOC [black, Indigenous and people of colour]. To be legitimate and provide the kind of oversight needed, that’s where we need to end up.
We also need new skills at the table and ESG expertise should be a clear priority. If climate change and COVID-19 have taught directors anything, it’s that environmental and social risks are business risks. There’s no question that directors need to be comfortable navigating ESG issues in the governance context.”