How advisory boards can raise the bar on ESG advocacy

THE board of directors of a large family-owned conglomerate in Asia was intensely discussing a proposal to invest millions of dollars to enhance emissions standards and worker safety across their power plants.

The founder chairman wanted the board's eight qualified non-executive directors to weigh in - and the majority of them seemed to favour this proposal. However, some directors endorsed the idea of deploying the capital to create additional capacity through brownfield investments. This would have a faster payback period and the earnings impact would be accretive and quantifiable. There was no consensus after several hours of debate. As a passionate sustainability advocate, the chairman of the board eventually stepped in and approved the decision to proceed with the first option.

As accountability for sustainability and stakeholder capitalism increases, more boards will be required to make difficult choices such as the one highlighted in the case above, where environmental, social and governance (ESG)-related initiatives may compete with other enterprise priorities for capital.