Educating Boards and Executives on ESG: Interview with Ioannis Ioannou
26 May 2020 - By Susanne Katus, VP of Brand & Business Development
Professor Ioannis Ioannou of the London Business School and Datamaran CEO Marjella Lecourt-Alma took part in a Fireside Chat about the consequences companies face if external risks, like ESG issues, are not taken seriously.
During this discussion, the two covered the recent big changes in the corporate strategy space, including:
- Why executives need to care about monitoring external and emerging risks, like ESG;
- The fact that boards and senior executives are increasingly responsible for these risks, and, more often than not, insufficiently prepared;
- How to build a resilient organization for the now, next, and beyond; and
- Why more corporate executives than ever before are participating in Ioannou’s course on ‘Sustainability Leadership and Corporate Responsibility.’
Ioannou opened by saying that “twenty years ago, the sustainability practices that we see in the mainstream today were pioneering and avant-garde. Now, they are common and growing in acceptance.” The growing adoption of these practices is driven by the strategic imperative to not get left behind in the modern business landscape.The push for more and more frequent disclosure, more social consideration, and more authenticity by and from businesses and their leaders is not new - but in the age of COVID-19, these trends are accelerating. Senior executives and board members need to deepen their understanding of external and emerging risks. The question remains: can they do this quickly enough?
Understanding external risk trends
ESG risks are "changing the global landscape, and the COVID-19 crisis is demonstrating that these risks can play out, from their global interdependence in the supply chain to the fact that we can no longer look at ESG in a siloed way."
Ioannou continued: “I always tell my students that sustainability is the mother of all disruption. ESG issues have the capacity to fundamentally change the global business landscape - and often do.” COVID-19 is a standout example of this exact phenomenon.
The high level of participation of senior executives in Ioannou's course on ‘Sustainability Leadership and Corporate Responsibility’ is evidence that business leaders are recognizing that “ESG cannot be ignored anymore.” Why?
“This is a trend reflective of an ongoing disconnect between sustainability professionals and what is actually going on at the board or executive level. COVID-19 has accentuated this disconnect, providing an impetus to overcome it.”
Financial and reputation gains
The business case for doing so rests on the interdependency between issue areas. Disruptions in the supply chain, or in workplace conditions, or in anything else means a direct financial cost - in lost productivity, opportunity, and more.
Marjella remarked that “it is absolutely the case that companies risk suffering losses as a result of not integrating ESG into their core strategic discussions.” These losses are not just financial, but also take on reputational costs, leading to questions of credibility.
The entire discussion here hinges on what is, in a word, “authenticity,” Ioannou reinforced. This is a concept that is “important to all stakeholders, from workers to investors.”The key to being authentic, especially from the investor standpoint, is clear and consistent reporting, as well as direct engagement. Speaking with the management team helps them understand how real their commitment is beyond just what's on paper. Understanding the purpose, personal drive, and process behind defining those priorities, and knowing that executives are on top of how these risks evolve.
Monitoring is not only a way to improve direct engagement with the value chain by increasing awareness of top-of-mind issues, but it also plays an important role in mitigating risk.
Even when “investors take something as a given, they still demand monitoring on the topic,” Ioannou highlighted. And the things they take as a given, or decide are of significance, might not be immediately obvious. Executives need to proactively keep a pulse on how the external landscape shifts, and communicate how they’re doing so.
Monitoring, in this sense, is synonymous with transparency and authenticity. Marjella notes that “there is a real hunger amongst investors and other stakeholders for more data everywhere.” These stakeholders want - and demand - the ability to see as much information as a company can provide. In order to provide this information, “companies need to be continually updating, reassessing, and analyzing all of their data from all of their sources.”
This last point - regarding dynamic monitoring - is incredibly important. “Companies need to constantly monitor, not just undertake a once a year assessment.”
Executives need to step it up
Companies are at different stages in adapting to the new normal. Some monitor ESG continuously, others only do so at most once a year. Some have dedicated ESG, risk management, and sustainability teams that regularly interact at high levels, others only bring in those teams during major crises. Others are at the stage where they simply don’t care at all.
Companies at this stage tend to find themselves worse-off, at a competitive disadvantage, or even entirely wiped out by the global or local disruptions that seem to be becoming more and more common.
How well a company adapts to the new paradigm is firmly the purview of the C-Suite and the board. ESG is and must be “a corporate leadership trait". How willing senior executives and board members are to assume responsibilities beyond the walls of their own operations plays a direct role in their success. While board members often imply a lack of responsibility beyond that to shareholders. But companies that adopt this mindset will be - and are being - left behind.“As investors become activists, the board, and the executives they chose, will need to change.”
Filling in the gaps - education & technology
It is more important than ever to ensure that decision-makers have the education and the tools they need to respond to the new pressures that COVID-19 is accelerating. Ioannou has discovered that there are “different kinds of gaps decision-makers need to rectify: a lack of knowledge, a lack of transparency, and a lack of the proper language in the boardroom - not to mention an ideological opposition to ‘rocking the boat.’”
”Senior executives need to understand what stakeholders are, why they should care about them, and how to undergo a materiality assessment as a necessary prior” to business success in the now, next, and beyond.
The way to achieve this education. That’s why Datamaran has partnered with Ioannou and leading academic institutions to provide the Datamaran platform to business students - current and future leaders - for free.
The solutions that businesses need in order to be proactive largely revolve around the data they need and the internal controls and processes that they have in place. For sustainability professionals, they need platforms that can “convince executives and board members of the importance of a specific issue or strategy”; while for the senior decision-makers themselves, they need solutions that “allow them to be accountable for their decisions.”
At the end of the day, such tools must be digital in order to keep up with the increasing torrent of data in our digital world.
The silver lining
There is reason to be “optimistic about a silver lining to this crisis". And that’s that it has opened our eyes and our awareness to issues like climate change and other ESG risks. All of these issues have the potential to be much worse than COVID-19.
“Business leaders need to put much more trust into science and data, and we must recognize that government is not the enemy - in terms of regulation and scaling up solutions to fill in the gaps, they’re the best game in town.”
Ioannis concluded by saying “the trends in ESG and risk that we are seeing are not just here to stay, they’re here to accelerate.” It is time to “start investing in collaborations with all actors: governments, activists, NGOs, and civil society organizations.” Executives need to recognize the value in this - or be left behind.
“We are all in this together.”
About Ioannis Ioannou
Ioannis Ioannou is the Associate Professor of Strategy and Entrepreneurship at the London Business School. A well-known and respected academic in the field of business, he lectures on sustainability, ESG, risk, and the place of the corporation in the social framework. Ioannou is responsible for the executive training course “Sustainability Leadership and Corporate Responsibility.”
Global Insights Report: The Three Big Wake-Up Calls For Boards
The events of 2020 brought risks related to public health, climate change, and diversity, equity, and inclusion to the forefront of public consciousness. Yet, too many businesses are failing to incorporate external and ESG risks into their long-term strategies and to think about business model innovations to reorient towards long-term value creation.
Published jointly by Datamaran and The Conference Board, this Global Insights Report examines how some of the largest public companies reacted to the events of 2020 in their corporate reporting. It considers how senior executives and Boards can apply this knowledge in addressing other systemic and external risks.
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