Beyond Profit: How Boardrooms can Lead with Sustainable Investment Priorities

As a result of the increasing visibility of climate change and its impacts across the globe, in today's business landscape, the integration of sustainability practices into corporate investment strategies is both considered a moral necessity and the key to long-term success as the world adapts and builds resilience in the face of climate change.

Investors are increasingly appreciating that a company's performance is dependent on effective environmental, social, and governance (ESG) factors, which directly impact long-term profitability. Despite this, a sense of procrastination remains potentially the most important factor in a company tackling internal environmental issues: the boardroom. Whether this originates from a nervousness about changing their methodology, a lack of knowledge, or simply a distrust in the threat of climate change is unbeknownst to anyone working in the sustainability sector, but it does not change the fact that boardrooms must do more to lead in prioritising sustainable investment.

Fundamentally, investors are recognising that sustainability is going from being a nice thing to have, to being an integral part of survival. Companies with better environmental performance have a better brand image, a more loyal customer base, and, crucially, a greater plan for long-term value creation. Environmental considerations and their inclusion in a company's broader financial strategy are becoming intrinsic to a company's legitimacy and are becoming part of the overall business strategy and operations to secure market competitiveness. Furthermore, companies without these considerations will lose their licenses to operate from essential stakeholders. Moreover, simply through the passage of time, ESG factors will become more important to the performance of companies as key stakeholders become owned and controlled by Millennials and Generation Z, who are far more likely to seek environmentally conscious investments.

There are countless ways that a board can lead with prioritising sustainable investment, but I believe these points listed are the key components of creating priorities. Essentially, successful prioritisation is going to derive from how well a boardroom can effectively plan and implement a specific strategy relevant to their company.

This leads us to the essential question. As we finally barrel into an environmentally conscious future, what can boardrooms do to lead with sustainable investment priorities?

Firstly, and perhaps obviously, sustainability practices must be embedded into corporate strategy wholly. It's all very well for a large corporation to have a one person 'Sustainability Lead', who combats internal environmental considerations, but this achieves very little when a company is still making large unsustainable investments. For companies to have a viscerally positive impact on the environment, a top-down integration of sustainability practices from the boardroom into a corporation's entire strategy is essential, as this defines clear guidelines and specific 'no-gos' for investments. For example, Danone set out it's 'One Planet, One Health' strategy in 2020, a topdown company-wide strategy which covers its governance, ethical practices and investments in sustainable practices, such as tackling plastic waste, sustainable agriculture and new energy recovery systems. Through a proactive boardroom, not only have Danone secured their longevity, they have also improved their public image.

Boards should also establish governance structures internally. As previously mentioned, it's ineffective for an environmental committee to exist solely without top-level support. These kinds of environmental departments are only effective if combined with an all-encompassing strategy. An overseeing committee of this nature within the boardroom ensures a company-wide implementation of sustainable investment strategy, as well as making certain that sustainable investments are prioritised at the highest possible level.

Critically, boardrooms must also take charge of the reporting and monitoring of such strategies, and their environmental impact as a whole. They are the driving force to lead their companies into frameworks such as the Global Reporting Initiative (GRI) or the Task Force on Climate-related Financial Disclosures (TCFD); without engaging with these frameworks, sustainable investment strategies can become directionless. It's down to the boardroom to monitor this progress, and create a trickle down of sustainability practices internally, as well as setting a precedent for other boardrooms and companies to do the same.

Collaboration with external partners and organisations is a key way to enhance the prioritisation of sustainable investment in general; boardrooms must lead in engaging with other companies, NGOs and industry groups. From Bankers for Net Zero's perspective, we found that at COP28 the main message that came out of the entire conference was the need to foster collaboration and how it's potentially the only way we can effectively move forward to a net zero future and prioritise sustainable investment.

Every company's boardroom needs to make concerted efforts to ensure their company engages in collaboration, not only to influence others, but share and gain knowledge; it's categorically beneficial for everyone. NGOs are often the unsung heroes in this area, providing connections to government and other corporations that would not exist without them. I encourage boardrooms to engage with NGOs more thoroughly to get the most out of collaborating in the context of sustainable investments to gain knowledge, such as banks like HSBC, Tide and Natwest who actively engage in Bankers for Net Zero's SME programmes and ultimately improve their company's long-term viability.

Boardrooms should prioritise investment in green technologies. If they don't, they risk being stranded with bygone investments in unsustainable industries that will cease to exist, or at least become extremely minimised in the next 10 to 20 years.

It also goes without saying that the future of technology is green, or at the very least environmentally focused. In fact, at present, there are a few companies which aren't developing sustainable products. Nearly all car companies are manufacturing electric vehicles in the face of the inevitable phase out and demise of internal combustion, and construction companies are moving towards low carbon or carbon neutral construction, for example. Therefore, it makes sense that boardrooms should prioritise investment in these areas: If they don't, boardrooms risk being stranded with bygone investments in unsustainable industries that will cease to exist, or at least become extremely minimised in the next 10 to 20 years. This is a far greater risk than the perceived risk of investing in green technology as there is not a debate anymore; the world is moving towards a greener future and boardrooms must seize this opportunity, for the good of their companies and the real economy as an entire entity.

The prioritisation of sustainable investments is going to require considerable effort. Before a boardroom can even think about allocating money, they will need to identify the key strategic issues for their company and understand their highest carbonemitting investments before any kind of effective strategy can be made. This of course will consume time and money, but I pose this question to boardrooms: Would you rather sacrifice a little now, or sacrifice your financial future? After identifying ESG risks and opportunities, small steps can be taken to focus on a few ESG factors which are the most strategically relevant. This is going to be different for every company and will vary depending on whether a company should spend time on monitoring issues that impact their brand or factors that impact their cost structure. It's hard to do at once, but taking the time to identify all these factors and act upon them sets a boardroom's business in good stead for the future.

There are countless ways that a board can lead with prioritising sustainable investment, but I believe these points listed are the key components of creating priorities. Essentially, successful prioritisation is going to derive from how well a boardroom can effectively plan and implement a specific strategy relevant to their company. By engaging with external actors and forming strong internal structures geared towards sustainability, boardrooms can lead their companies' to more sustainable investments to galvanise future growth. The time for deliberation is very much over, and boardrooms must act now if they wish to remain profitable in the long term.