Sustainability rising up the ranks of boardrooms in Latin America

25 October 2016 Consultancy.uk

Sustainability management is becoming increasingly important in the boardrooms of Latin American organisations. Yet while the trend is positive, much terrain still needs to be gained, finds a new report.

Sustainability management is becoming an ever more pressing issue for companies, as the world wakes up to the threat of human induced climate change, environmental degradation and pollution as well as social and economic tensions. As investors and potential employees become more critical of companies’ sustainability records, companies across the globe are implementing sustainability strategies. A recent reports highlight that 57% of board members at surveyed investment firms say that they are actively excluding and divesting from companies with poor sustainability track records.

In a new report by A.T. Kearney, MIT Sloan and the Global Reporting Initiative, the researchers investigate current sustainability management trends among 555 businesses across Latin America. The survey involved 275 directors on company boards across the region.

Understanding of sustainability

Sustainability management

The survey of the Latin American directors finds that there is considerable understanding of sustainability, 62% say that they have a deep understanding of the concepts and are aware of the latest improvements in sustainability management. 37%, however, say that they know of the concept, but are not familiar with the details about the subject.

Of the 62% that have an understanding of the concept, 18% have yet to form an opinion about the subject – suggesting that they are yet to incorporate it into their value scale.

Sustainability management contributes to value creation

The majority of respondents, when asked about how sustainability management contributes to the creation of company value, state that it increases the value of intangible assets such as reputation and brand value (62%) and that it provides early identification of both risks and alternative ways to achieve goals (59%). Around 25% of respondents say that sustainability management results in increased share price and value generated for shareholders, while 15% say it supports the attraction and retention of talent.

Eulalia Sanin Gomez, A.T. Kearney partner and co-author of the report remarks, “Those directors with a formed opinion on sustainability management perceive tangible benefits for those companies that embrace sustainability beyond reputation and brand value. These directors also participate more actively in risk and materiality analysis and value those management teams with a longer-term vision.”

Currently responsible for handling sustainability

The respondents were also asked to consider who currently leads the handling of sustainability management, as well as who should be taking the helm. The results point to a considerable discrepancy, 68% of respondents say that the administration (executive) currently leads, while 44% believe that they should. As it stands, 25% of respondents say efforts are led by the Board of Directors, while 56% of respondents believe the Board of Directors should be leading the issue.

Reporting on sustainability

Better reporting

Reporting on sustainability efforts provides stakeholders with clear information regarding the efforts of an organisation, in the face of increasing demand. Investors are becoming increasingly critical of companies’ sustainability records, especially in light of changing regulatory environments focused on driving change towards long-term sustainability.

The report highlights that many of the companies surveyed across Latin America (44%) are yet to invest in formal reporting. For companies that do produce reports, the Board of Directors is an active participant in 38% of reports, while in 52% of cases it takes a passive role.

Improving sustainability management

Improving sustainability management

To improve the situation around sustainability management 75% of respondents say that companies should consider sustainability as a key element of wider corporate strategy, forming a key objective of the company. 38% say that there needs to be better training on sustainability for company directors, while 30% say that sustainability reports should be presented to the Board of Directors with greater depth and reliability.

David Kiron, MIT Sloan Management Review Executive Director and Academic Director of the study notes, “This data indicates that many directors have more to learn about sustainability. Less than half of directors say they have a deep understanding of sustainability and a majority say that sustainability management creates intangible business value. Sustainability is not just about the intangible. It’s one of the most important, material issues of our time.”

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