More diverse boards are proven to lead to more successful and profitable organisations. And just possibly there will be younger people who care deeply about what the future will look like.
Opinion: For those who might have thought that climate change denial is still a possibility, climate change came to Aotearoa New Zealand early in 2023.
Ask the silt-buried orchardists of the Hawkes Bay, the slash-damaged communities of Tairawhiti, the tens of thousands of flood victims of Auckland, the slip buried communities of Muriwai, Piha and Karekare, and those of Northland, Coromandel and the East Coast who still have impassable state highways.
And climate is only one symptom of environmental degradation.
And so it is no real surprise that according to commentary accompanying the Strategic Pay 2023 directors’ fees survey, stakeholders are applying pressure to show the impact they are having on the environment, and on the world around them.
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Environmental, social and governance (ESG) reporting, with diversity, is a key area of interest to investors and stakeholders.
It was not many years ago that generating profit for shareholders was considered to be the prime purpose of boards. It was convenient to consider social and environmental outcomes to be the responsibility of individuals and governments. We were in a world of extraction of greatest value from the resources of planet and people to provide maximum profit.
Slowly, however, there has been a realisation that we are part of an ecoystem of where companies are expected to both not do harm and to add value, and the consequent rising of the concept of a good corporate citizen. The companies with the best cultures retain the best people and in the current environment of worker shortage, being a good employer is critical.
And those who treat their customers and their communities well are those who are most successful.
“We focus on sustainability not because we’re environmentalists but because we are capitalists and fiduciaries to our clients.” – Larry Fink, Blackrock
From an environmental view point, there is increasing pressure to decarbonise and to make climate related disclosures. Integrated reporting and ESG reporting are now the norm, but such reports cannot be produced without appropriate strategies and actions around both the environment and social contribution.
As an example, during my time as chair with Northpower Fibre we were aware that in rolling out ultrafast broadband to Whangarei and environs, we were also bringing the new opportunity for a connection to the world. We invited the leaders of Whangārei to identify where the best investment might be to ensure that this opportunity was maximised.
Digital education was identified and Taitokerau Education Trust was born, to bring digital learning into low decile schools. We helped to grow the trust and its activities and the trust is still supported in many ways by the company. Reporting of the Trust’s successes became a part of the integrated reporting of Northpower Fibre.
The sustainability reporting of companies such as Air New Zealand and the Bank of New Zealand indicate just how deeply the thinking around sustainability is being bedded into the strategies of these companies, and their relationships.
They are following the international trend for social good and sustainability to be an inherent part of good governance.
The annual letter to chief executives and shareholders from Larry Fink, the chair of the world’s largest asset manager Black Rock, has for the past few years emphasised the importance of sustainability. “We focus on sustainability not because we’re environmentalists but because we are capitalists and fiduciaries to our clients.”
The most recent letter in 2023 was a little more subdued, apparently because of some backlash in the US from various US states.
A year ago, the Institute of Directors announced it had joined the global Climate Governance Initiative, formed in 2019 in collaboration with the World Economic Forum, and was the host of Chapter Zero NZ.
Chapter Zero works to support directors to effectively govern New Zealand organisations on the response to climate change – as a part of the global goal of zero emissions by 2050. Directors are expected to play their part in leading their boards to a decarbonised future.
It is of interest therefore to note that the pressure for ESG reporting tends to be stakeholder-driven rather than board-driven. Could a clue to this be in the lack of diversity around the board table?
Diversity allows more challenging conversations and better outcomes; more diverse boards are generally proven to lead to more successful and profitable organisations. And just possibly there will be some of the younger generation on these boards, who will be there for the future, and who care deeply about what that will look like.
Let us hope that the next survey shows that as companies, we have made progress in creating a better and more sustainable future, by ensuring that we have the best and most diverse group of people around the table, and we are thinking about the future we leave to the next generation.
