Corporate Sustainability Governance Fitness Test: Three Actions for Leaders

Key Points

• Business leaders are navigating an increasingly complex and disruptive landscape of sustainability challenges, governance issues, and risks.
• Against this backdrop, businesses must focus on three key actions: integrating material sustainability issues into governance structures, roles, and responsibilities, cracking the code on stakeholder engagement, and building resilience from the value chain forward.
• In our experience, leaders who ask the right sustainability governance questions have the most resilient governance structures.

As we enter 2025, navigating business leadership on key sustainability issues has never been more challenging. Political polarization, the advent of mandatory sustainability reporting regulations, and an environmental, social, and governance (ESG) backlash have created a paradox: companies are expected to disclose their sustainability programs yet may be punished for doing so. Wars and a burgeoning energy crisis are disrupting supply chains and straining long-held assumptions about material availability and business models. At the same time, the emergence of AI-enabled misinformation campaigns is causing companies to question what they know and how they can credibly communicate with stakeholders.

Business leaders are currently grappling with how to govern in such a chaotic, disruptive environment. In the first blog in our three part series, The Silent G: Six Questions Every Leadership Team Should Ask about Sustainability Governance, BSR Managing Director Christine Diamente suggested the answer lay in getting the foundations in place: organizational structure, stakeholder engagement, and resilience. Here we take a deeper dive into these three topics.

Getting the Organizational Charts right: Governance structures, roles, and responsibilities

It’s tempting to mistake a governance flow chart for a map: follow the boxes and lines, and it will take you where you want to go. But flow charts defining authority and decision-making (usually flowing down), and accountability and information (usually flowing up), are just the beginning. Does the chart reflect reality? Does a current materiality assessment inform issue management? Do issue owners possess the requisite capacity, skill, time, and resources? Does an oversight body validate issue assessments, vet assignments, review targets, and KPIs, and ensure incentives aligned with corporate strategy? Is there a flexible mechanism to spot emerging issues and institutionalize or sunset old ones? 

BSR supports its members to stress-test and upgrade their sustainability governance systems by:

• Adopting a sustainability issue management model across teams. A dedicated sustainability team led by a Chief Sustainability Officer (CSO) (or equivalent) works across business functions to translate material issues and corresponding data into operational goals, targets, and KPIs. They should ensure a balance between embedding material issues across the business while looking ahead to emerging issues. Issue ownership rests with the function best equipped to manage them in concert with other organizational goals—thus Procurement has KPIs for supply chain sustainability; Product Development is charged with incorporating more sustainable materials into product design; etc. An executive-led steering committee oversees this process and is accountable to the C-Suite, which in turn reports to the Board.
• Leveraging materiality assessments. Materiality, when well executed, validates known issues and illuminates previously obscured or emerging issues. New issues trigger issue-specific assessments, which yield the information and insights required to confirm impacts, identify affected stakeholders and design corresponding strategy, data collection and controls. These steps constitute an early warning system—a yellow flag to prevent a red or to transform to a green—allowing companies to refresh their policies, practices, and training before an issue becomes a crisis. We’ve seen this process successfully deployed with human rights, living wage, and climate resilience, amongst others. Materiality assessments can also be a useful catalyst to refresh strategy, reporting, and communications.
  •  For more insights, see So You've Completed a Materiality Assessment: Now What?
• Doubling down on integration: A materiality assessment can also reveal that sustainability governance systems and policies are essentially dormant, without the organizational focus, skillsets, or resourcing needed to animate them. The task then becomes operationalizing governance through integration.
  • BSR’s recent report, The Impact of Mandatory Sustainability Reporting on Corporate Functions, is an overview of how diverse functions across the enterprise are evolving in response to new requirements. For example, mandatory sustainability disclosure laws have prompted the creation of an ESG Controller responsible for ESG data measurement and reporting. This position leverages financial acumen to connect ESG to financial and operational data; prepares risk assessments, forecasts, and reports; and ensures that control processes appropriately address and deliver on goals.
  • Increasingly, companies are also creating dedicated Sustainability training functions or a sustainability academy to ensure that the entire organization has a program to upskill continuously on current and emerging sustainability trends relevant to the business. This can include all-employee training sessions to dedicated, bespoke programs for specific expert functions, C-suite, and the board of directors.

Cracking the Code on Stakeholder Engagement

In a climate of increased stakeholder expectations, companies must identify priority stakeholders and understand their perspectives and concerns. Of particular priority are rights-holders: those whose human rights are or could be affected by the company’s operations or value chain, and who often lack a direct, trusted line of communication with the company.

BSR employs a 5-step process to help companies build stakeholder engagement strategies for long-term business value.

There is a learning opportunity at each step in this process. Co-creating Climate Justice Interventions Between Business and Communities lays out 10 principles for co-creating stakeholder engagements for long-term value creation, including listening to learn, contending with systemic historic and contemporary injustices, and moving at the speed of trust. These principles can be applied with a wide range of stakeholders and rights-holder engagements to build the foundations of solid, long-lasting collaborations.

Building Resilience, from the Value Chain Forward

In many ways, business resilience is the holy grail: a well-designed sustainability strategy delivers a more robust, flexible, and resilient business. How does one start? It won’t surprise you to learn that any sustainability-led resilience strategy is grounded in a few material issues. BSR helps companies select priority issues; explore their evolution through futures exercises; map related impacts; and use the insights gained to build and test strategies. To broaden the aperture of their thinking, many companies are turning to External Advisory Councils to bring authoritative yet often less visible stakeholder interests to the fore, allowing executives to stress-test their strategies before they are adopted and deployed and strengthen their approach, especially at value chain level.

In our experience, leaders who ask the right sustainability governance questions—and have the vision and tenacity to find the right answers for their company and context—have the most resilient governance structures. Check out BSR’s corporate governance activities or contact the Sustainability Management team to put your system to the test.

This article was originally published at the BSR website "Sustainability Insights" and is written by Rachel Fleishman, Managing Director, Consumer Sector and Business Transformation, and Christine Diamente, Managing Director, Transformation, at BSR.