Getting Shareholders on Board With Your Sustainability Vision
The management issue is not whether sustainability belongs on the agenda, but who owns the trade-offs. For CIOs, CTOs and transformation leaders, the practical question is how to turn a broad ambition into a governed portfolio with explicit decision rights. That means deciding which initiatives are material, which are experimental, and which should be stopped when they start competing with core performance priorities.
A second implication is funding discipline. Sustainability efforts should be treated like any other strategic investment: defined benefits, measurable assumptions, review gates and a clear link to capital allocation. If leaders cannot explain how an initiative affects cost, risk, resilience, customer demand or regulatory exposure, then the case is not ready for executive approval. The trade-off is that tighter scrutiny can slow enthusiasm, but it also reduces the risk of launching symbolic programmes that never scale.
Boards and executive teams also need a common language for performance. Metrics matter less as a reporting exercise than as a management tool that shapes behaviour across business units. The next question is not simply โwhat do we measure?โ but โwhat decisions will this metric change?โ If incentives are introduced too early, they can distort behaviour; if they arrive too late, sustainability remains a side project.
For technology leaders, the key test is organisational readiness. Do product, finance, risk and procurement leaders agree on the same thresholds? Are line managers equipped to challenge assumptions? And is the transformation narrative credible enough to hold shareholder support when short-term returns and long-term resilience do not perfectly align?
Asking for shareholdersโ blessings upfront is better than asking for forgiveness later. Loading the Elevenlabs Text to Speech AudioNative Player…
Corporate boards facing the pressure to direct their firms towards greater sustainability can feel conflicted when they see their fiduciary duty as mainly owed to shareholders. But boards cannot turn a blind eye to sustainability since all businesses operate in โ and depend on โ the environment. When trade-offs between sustainability and profitability arise, itโs their role to help executives strike the right balance and find ways to bring shareholders on board.ย
This challenge was the focus of a dedicated programme at the lastย ChangeNOW summit in Paris, where business leaders and academics explored how boards can support sustainability without losing shareholder backing.ย
Prioritising sustainability objectives
First, boards have to prioritise. There are 17 Sustainable Development Goals (SDGs) and it is almost impossible for one firm to make meaningful progress on all of them. This is especially true when goals conflict. For example, an automotive company may benefit the planet by electrifying its powertrain, but disadvantage blue-collar employees because fewer of them will be needed in assembly, maintenance and repair.
One way to prioritise is by focusing on those SDGs that are the most financially important (or financially โmaterialโ) for the firm in terms of current and future revenues, costs and risks. The industry-specific sustainability materiality map created by the Sustainability Accounting Standards Board orย SASB, (now part of the IFRS Foundation) provides a framework, or starting point, for firms to approach this.
Firms likeย Engie, Novartis and many others have developed their ownย materiality maps tailored to their specific business model, product portfolio or supply chain. This is often done in collaboration with industry experts, major shareholders and non-governmental organisations (NGOs).ย
Financial materiality frameworks can also help directors and executives identify hidden sustainability-related value drivers in their business to help them shift the focus from compliance to value creation and make theย business case for sustainability investments to shareholders.
While the SASB materiality framework focuses on environmental or social impacts on the firm, the firmโs impact on the environment and society is also important. One way to identify those impacts is to conduct life-cycle assessments for its products with the goal of identifying the firmโs environmental and societal impacts across its value chain.ย
Some companies, such asย Kering Groupย amongย others, go one step further by estimating the financial costs of their productsโ environmental impacts. This so-called โmonetisationโ of impacts on the environment and society can help companies put in perspective the profits generated by their productsย vis-ร -vis their costs to society. To this end, PwC, theย Value Balancing Alliance, and theย International Foundation for Valuing Impactsย have published detailed guides for the monetisation or valuation of corporate environmental and societal impacts.
While boards should of course delegate these impact assessments to the employees of their firms, they must be sufficiently sustainability-literate to understand the assessment and be able to challenge it.
Getting shareholder buy-in
Once the sustainability priorities are set, the next step for boards is to get shareholder buy-in. A bold move would be for firms to obtainย Benefit Corporation status or similar designations to signal to shareholders that their purpose is not only shareholder value maximisation. However, few blue-chip companies have so far tried to obtain such designations.
More realistically, boards and executives must endeavour to communicate the business case for sustainability investments, based on their financial materiality assessment. Even if the business case is not clear, boards can elicit shareholder buy-in by providing them with cost estimates and other details of the sustainability initiatives and have them vote on these initiatives at annual general meetings (AGMs).ย
Companies like Unilever, among dozens of others, are already raising their climate transition plans at AGMs, in what is commonly known as aย โSay on Climateโ (akin to โSay on Payโ). After all, asking for shareholder permission to invest in sustainability initiatives is better than asking for forgiveness later.
On the flip side, it would be risky for boards to make major sustainability investments without prior shareholder approval. An optimistic outcome could be a change in the ownership base of the company from purely profit-oriented shareholders to more socially minded ones, which would give the CEO and the board the mandate to pursue sustainability objectives.ย
However, apart from a potential fall in the firmโs share price, there is always the risk that an activist shareholder buys into the stock and pushes for a profits-first approach, perhaps even replacing incumbent directors and CEOs in the process, as was the case atย Danoneย andย BP.
Companies and their boards could pre-empt such shareholder pressure by reintroducing (either at IPO or later if possible) governance tools that insulate boards from hostile shareholder activism, such asย dual-class share structures,ย staggered board elections,ย poison pills, and otherย takeover defences,ย even though companies have tended to move away from in recent years. Of course, such defence mechanisms are unnecessary if the firm has a socially minded quasi-controlling shareholder, like the government or founders.
Monitoring performance
Once boards and executives have shareholder buy-in for their prioritised sustainability performance dimensions, it is time to execute. For instance, boards should decide whether and how sustainability should be routinely factored in capital allocation decisions. Chevron and InBev consider different carbon price scenarios in their net present value and internal rate of return calculations. Another example is the Belgian special chemicals companyย Solvay, which formally integrates its productsโ environmental footprint in its product portfolio analysis, with the goal of generating more revenues from products with lower environmental impacts over time.ย
Monetising a firmโs and its productsโ impact on society also helps to integrate sustainability into strategic and operational decision-making because comparing and trading off profits with environmental costs in dollar value is easier than comparing monetary profits with tons of CO2 equivalents. Of course, monetisation requires judgement and assumptions, particularly when the financial costs of individual environmental and social impacts are even more uncertain than the financial impacts of CO2 emissions. The latter can be approximated using theย social cost of carbon or theย carbon price in cap-and-trade markets.
Another example of incorporating sustainability in decision-making is in the product design stage, where firms can useย Resource Cleansheet solutions to compare product costs, customersโ willingness to pay and environmental impact across different design configurations and sourcing options.
Once the board understands how much the approved sustainability investments and initiatives can improve sustainability performance, it will be in a better position to set quantitative sustainability targets over the short, medium, and long-term horizons. Relying on frameworks like those developed by theย Science-Based Targets initiative (SBTi)ย will lend credence to these targets. Once targets are set, boards should be furnished with the firmโs performance on a regular basis, in accordance withย Original Postapers.cfm?abstract_id=3047910" shape="rect">board reporting best practices, such that sustainability performance against targets becomes a regular component of board discussions, and targets can be adjusted when appropriate.
Hundreds of boards around the world now link executive compensation to ESG targets. What is important there isย transparencyย about the weights on sustainability metrics vs. financial metrics, how targets for quantitative metrics were set and how the board scores executives on qualitative metrics.
Incentives for better sustainability performance can then be cascaded down the organisational hierarchy. For example, Microsoft uses internal carbon pricing to charge its business units based on how much carbon they emit, providing incentives to reduce business unit emissions. This raises the question: Are incentives best tied to impacts measured in standard units (e.g. tonnes of CO2 emitted and gallons of water used) or to monetised impacts?ย
The latter makes it easier to evaluate a business unitโs total environmental impact (e.g., the societal costs of its CO2 emissions plus that of its water consumption in monetary terms). However, impact monetisation may feel like a black box process to the employees (e.g. business unit leaders) who are evaluated on them, obscuring how their sustainability performance is measured and how they can improve it, which can reduce their motivation. That said, these issues can be avoided if sustainability is ingrained into the firmโs corporate culture. In fact, formal sustainability performance incentives can backfire in this case.
The last word
Finally, while boards and firms may want to publicise their sustainability initiatives for public relations and marketing purposes, this should be done with caution. Greenwashing allegations can mar a firmโs reputation. One useful rule of thumb is that firms should not spend more on marketing a sustainability initiative than the amount they spent on the initiative itself.
Edited by:
Geraldine EeAbout the author(s)
Thomas Keusch
is an Assistant Professor of Accounting and Control at INSEAD. His research interests include corporate governance, sustainability, shareholder activism and NGO activism.Enjoyed this article? Sign up for our newsletter to receive regular insights and stay connected.