Ceres, a sustainability nonprofit organization that works with influential investors and companies to build leadership and drive solutions throughout the economy, issued a report on September 14, 2017, titled "Lead From the Top: Building Sustainability Competence on Corporate Boards." The report posits that company boards must be sustainability-competent in order to achieve long-term financial performance goals, increase the company's competitive advantage and also to meet their fiduciary responsibilities to the companies.

The report identifies key characteristics that make up sustainability-competent boards and provides key practices that corporate directors can utilize to ensure their boards are competent to make thoughtful decisions on issues such as climate change, water scarcity, and pollution. Specifically, Ceres argues that a sustainability-competent board has the following characteristics:

  • Integrates knowledge of material sustainability issues into the board nominating process to recruit directors that ask the right questions;
  • Educates directors on material sustainability issues to allow for thoughtful deliberation and strategic decision-making at the board level; and
  • Engages with external stakeholders and experts on relevant sustainability issues.

In the report, Ceres argues that company directors must be able to determine which sustainability risks are the most material to their companies and direct their companies to capitalize on the market opportunity created by resolving sustainability challenges. According to Ceres, the key practices that corporate directors should follow to ensure boards are sustainability-competent include:

  • Incorporating material sustainability issues into qualifications for potential board candidates;
  • Finding directors that can make the connections between environmental and social issues and the business context;
  • Recruiting candidates representing a diversity of backgrounds and skills to improve decision-making;
  • Integrating new directors with sustainability competence into current board deliberations, especially on strategy and risk;
  • Requiring regular education on material sustainability issues for the whole board;
  • Finding regular opportunities for boards to engage stakeholders on environmental and social issues; and
  • Incorporating material sustainability issues into board-investor dialogues.

Ceres explains that it is the new norm for corporations—and their boards—to mitigate disruptive forces stemming from environmental and social issues, citing the impacts of Hurricane Irma. Ceres notes that boards have a legal responsibility to act when environmental and social issues pose material risks on business models and financial performance. This legal responsibility, often referred to as fiduciary duty, generally arises under state statutory law and requires board members to exercise diligence, care, and skill in performing their roles. According to Carol Browner, former U.S. Environmental Protection Agency administrator, "[s]ustainability should be a primary matter for all board members, not just those with environmental or energy expertise and backgrounds ... Expanding board expertise on sustainability should be part of every company's board strategy."

Ceres developed the new report based on existing research and in-depth interviews with several experts, including corporate directors, investors, senior company leaders, and governance experts. The report builds on another report Ceres published in 2015, "View from the Top: How Corporate Boards Can Engage on Sustainability Performance," which detailed a two-pronged approach for integrating sustainability into decision-making via board governance systems and board actions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.