The existence of a well-structured sustainability committee not only serves as a critical coordinating function, but also one that can steer an ESG (Environment, Social and Governance) strategy into a competitive advantage for the business. This article explores the management of three companies’ sustainability committees and their respective responsibilities.
A Sustainability Committee by simple definition is a body that is accountable for the sustainability strategy and performance of the business . Not only is this a core part of good governance in any company, its role to integrate long-term thinking into day-to-day business decisions is evidence that sustainability and business priorities are in fact congruous in nature and should be regarded as such by senior management.
There are several reasons why a sustainability committee is valuable. From our experience working with sustainability managers from private and public companies, one of the biggest benefits of having a sustainability committee is that it is accessible to all functions of a business.
The backing which every sustainability manager needs
The role of a sustainability manager, by its nature, cuts across business operations and support functions to orient the organisation towards a triple bottom line. Commonly known as the ‘3Ps’ for people, planet and profit, this practice of taking into account not just business profits but also social and environment aspects of a company, is increasingly valued by companies today. A lack of support from key decision makers to develop and sustain the company’s efforts to improve its environment and social practices can often result in resistance from parts of the business required to report on performance or implement change.
As a coordinating body, the members of the Sustainability Committee play a role as champions of sustainability within the company. In fact, a good mix of coordinating executives, board level representatives and non-executives can be a powerful force to drive genuine engagement on sustainability issues amongst senior leaders of the business, as well as mobilising the support of the workforce.
Ensuring what gets measured really does get managed
For many companies with established sustainability committees, one of the most important items on the agenda is the management of sustainability performance. It is not surprising to see committees led directly by the CEO, COO or CFO, simply because of the importance placed in ensuring that the department heads of the key corporate functions are kept engaged in the business’ management of sustainability matters.
For Malaysian shipping company, MISC Berhad, all initiatives and programmes under its Sustainability Strategy are monitored and measured periodically, for the purpose of tracking progress and addressing any concerns/issues that may arise. “Sustainability is at the heart of MISC’s business practices and it is embedded in our Vision and Mission Statements. It shapes our strategy and decision-making as well as our approach in managing the expectations of our key stakeholders. Our Sustainability Strategy is a 5-year plan with specific targets, programmes and initiatives planned for each year under the six pillars of sustainability for MISC, namely: Customers, Shareholders, Governance & Business Ethics, Employees, Environment and Community,” said MISC’s Corporate Sustainability Manager, Mr Sharmel Ali.
He added “Governance of sustainability matters is of fundamental importance and we have established Sustainability Working Committees for each of the pillars to ensure the smooth coordination and implementation of initiatives under the Sustainability Strategy. Essentially, the effectiveness of the working committees and the meetings that are held to deliberate on the various initiatives and programmes are measured based on whether the objectives, as set for each pillars, are met and achieved.”
CASE STUDY FOCUS:
The following table provides an overview of the sustainability committee structures in three companies, all of whom have been reporting on their sustainability management for a number of years:
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Case Study 1: Golden Agri-Resources
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Profile of Company
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Singapore-based palm oil public-listed company with operations mainly in Indonesia.
The company is a component of the Dow Jones Sustainability Index 2017 and a constituent of the FTSE4Good Index Series in 2018.
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Structure
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Permanent
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Description of Structure
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The Committee is chaired by the company’s Corporate Strategy and Business Development Director, who oversees all matters related to responsible palm oil.
Committee comprises of “the senior leadership team across the upstream, downstream and corporate centres”, including the Head of Sustainability and Strategic Stakeholder Engagement Department and other staff members of the department.
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Where the sustainability committee sits (within the organisation):
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The Committee reports directly to the Chairman and CEO, and the Board.
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Description of the functions and responsibilities of the Committee:
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Monitors and oversees the implementation of the GAR Social and Environmental Policy (GSEP), an integrated sustainability policy with commitments on community engagement and empowerment, safeguarding workers’ rights, traceability and transformation of supply chains, environmental management & forest conservation and yield improvement (to reduce pressure on new land development).
It also signs off on the materiality matrix, before being presented to the Board of Directors prior to the publication of the report. The SC also deals with any urgent and developing issues.
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Frequency of meetings:
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Quarterly
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(Source: GAR’s SR 2016&SR 2017)
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Case Study 2: Rio Tinto
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Profile of Company
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A leading metal and mining company headquartered in Australia, with operations in 35 countries across 6 continents.
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Structure
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Permanent
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Description of Structure
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The Committee is currently chaired by an independent non-executive director.
The Committee comprises of 3 or more independent non-executive directors appointed by the Board.
The company secretary of Rio Tinto is appointed secretary of the Committee.
The Committee may sub-delegate tasks/powers to other parties.
Rio Tinto’s Terms of Reference details the purpose and structure guidelines of the Sustainability Committee.
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Where the sustainability committee sits (within the organisation):
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The Committee reports directly to the Board.
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Description of the functions and responsibilities of the Committee:
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Oversee on behalf of the Board the processes, standards and strategies designed to manage social and environmental risks – covering issues such as safety, health, employment practices, community relations, human rights, land access, etc. Activities include:
- Reviews adoption of all sustainability related policies/standards
- Oversee management processes to ensure compliance with policies/standards
- Review annual periodic reports from senior management (risk management)
- Ensure appropriate investigation is carried out under their whistleblowing programme
- Review audits and assurance reports on how policies/standards are implemented
- Review Sustainability Report before publishing
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Frequency of meetings:
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Meets no less than four times a year.
The Committee conducts an annual formal review of its performance.
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(Source: Rio Tinto’s Sustainable Development Report 2017; Terms of Reference of Rio Tinto’s Sustainability Committee 2012)
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Case Study 3: MISC Berhad
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Profile of Company
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A subsidiary of PETRONAS, MISC Berhad was incorporated in 1968 and is one of the world’s leading providers of international energy related maritime solutions and services.
The company has been a constituent of the FTSE4Good Bursa Malaysia Index since 2014. This index isdesigned to identify Malaysian companies with goodESG practices.
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Structure
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Permanent
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Description of Structure
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The Committee is led by the heads of the Sustainable Working Committees (SWCs) responsible for each of the 6 sustainability pillars, which is all part of the MISC Sustainability Strategy:
1. Customers
2. Shareholders
3. Employees
4. Environment
5. Community
6. Governance & Business Ethics
Committees are led by a member of the MISC Management Committee (MC), and comprises key focal persons representing different Business Units, Service Units and Subsidiaries. The Committee members are from senior management.
An illustration of the Sustainability Governance Framework can be found on page 51 of MISC’s 2017 Annual Report.
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Where the sustainability committee sits (within the organisation):
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The Committee reports to the Management Committee (MC), the highest decision-making authority in the Sustainability Governance Framework, led by the President/Group CEO. The MC reports to the Board.
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Description of the functions and responsibilities of the Committee:
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- Provide timely updates to the MC, which reports to the Board
- Ensure smooth implementation and monitoring of their respective policies in the 6 areas, which is all part of the MISC Sustainability Strategy
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Frequency of meetings:
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Varies within the working committees. On average, twice a quarter.
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(Source: MISC’s SR 2016 and additional information from MISC)
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How to form your own Sustainability Committee
Unlike ‘taskforces’ and ad-hoc committees that are commonly established within companies today, a sustainability committee should be a more permanent structure within the organisation.
Members of the committee should meet regularly and at defined times over the course of the year to discuss sustainability matters. These could be high-level discussions on strategic planning, or updates on ongoing projects such as sustainability reporting or community investment decisions. This meeting needs to be regarded with the same level of importance as any other board-level, or senior management meeting. Often, it can be scheduled right before or after a senior management meeting, especially if the representation in the meetings is largely the same.
If you are tasked with establishing a Sustainability Committee for your organisation, here are three considerations:
- Relevance to the business: Start with the objectives of the business and the team responsible for driving sustainability. Be pragmatic about the goals you have set for your sustainability programmes.
- Establish who needs to be around the table: If you are working on a proposed list of committee members, make sure their functions and areas where they are expected to contribute to the committee, based on their skill and experience, are included. It should include representatives from all departments needed to deliver the programme. Do not forget your subsidiaries – they may possess certain strengths or face unique challenges that are important to the business and its stakeholders. Best practicing organisations would establish a formal Terms of Reference for the role of this committee and the scope of their responsibilities.
- Embrace diversity: Seek a range of different skills, attitudes and input; bear in mind the arrangement must fit with the corporate culture. Many committees fall into the trap of groupthink – the practice of making decisions as a group in order to maintain harmony and conformity within the group, not necessarily resulting in the best outcomes or solutions for the organisation. Not only is this dangerous if poor decisions are mindlessly implemented, the time and resources wasted on ineffectual programmes can bring more despair than hope for stakeholders. A common practice among many companies is to include at least two non-executive directors on the committee. They are usually invited based on their expertise on particular sustainability issues relevant to the business.