Governance is the next frontier for achieving impact at scale

Those who have developed their careers within frameworks that emphasise the singularity of financial return will need to build new muscles.

Boards everywhere must act now – and act with confidence – if we’re to create a sustainable future. That means leaving behind old ways of thinking and switching to 21st century governance. The founding partners of a new venture, Mondiale Impact – Rosemary Addis, Dolika Banda, Mario Calderini, Karim Harji, Rajiv Lall and Laurie J Spengler – on what this looks like in practice, and three ways to get started. 

The challenges we face are globally significant and are compounding in their impacts on people and our planet.  This has real consequences for our environment and the way we live. What we do – and what we don’t do – now and over the next decade will define the future. In this collective ‘sliding doors’ moment, those who lead proactively will shape and seize opportunities. These actors will also be best placed to adapt to uncertainties with resilience and confidence. Ensuring a more sustainable future starts with leadership and calls for 21st century governance.

There is reputedly an old Chinese curse: “May you live in interesting times”. We face interesting times indeed – climate change, structural inequality, global pandemic, natural disasters and their manifest social and economic consequences. Boards and decision-makers leading organisations of all types through today’s challenges will be judged on whether and how effectively they responded. 

Those who have developed their careers within frameworks that emphasise the singularity of financial return will need to build new muscles

As leaders come to terms with the risks and opportunities triggered by current challenges, those who have developed their careers and experience within frameworks that emphasise the singularity of financial return will need to build new muscles to calibrate impact and integrate sustainability as part of the equation for long-term financial success. Almost every board and decision-making body will have to confront and learn to understand rapidly changing contexts and transitioning economies. They will also need to change how they respond to stakeholders including employees, customers, investors and regulators. 

There is a near-term opportunity to lift demonstrated experience from sustainability and impact markets to enable more leaders in boardrooms to act now and act with confidence in the face of significant environmental and social challenges. We believe this is the next frontier for achieving impact at scale.

Rapidly shifting context

The latest round of reports from the United Nations International Panel on Climate Change makes it clear that good intentions to do more will be insufficient. We need concerted, concrete action – now. Governance is clearly in frame: the UN Secretary General placed ‘failures of global governance’ at the core of today’s challenges. The IPCC elevated ‘collective inability of institution and governance systems to adapt and respond’ to a separate risk category. 

Conditions are changing rapidly. The most significant shifts in accounting and reporting standards since the second world war are under way. This is bringing increased scrutiny of whether what is in the tin lives up to the label. To cite just one example: a year after the introduction of the European Union’s Sustainable Finance Disclosure Regulation, Morningstar assessed 1,200 European funds as not meeting the mark to maintain their sustainability designation

As the implications of the transition are appreciated more broadly, commitments have been made by investors, corporate leaders and governments. However, commitments alone are not enough. High-profile examples of organisations being investigated include last month’s probe into Deutsche Bank’s ESG credentials, and the 2020 inquiry into mining giant Rio Tinto’s destruction of a 46,000-year-old Aboriginal site at Juukan Gorge, Western Australia. The rapid movement of capital out of Russia since its invasion of Ukraine in February 2022 is perhaps the clearest signal yet of mounting intolerance of profiting at the expense of people and planet. 

A lynchpin for trust

All decision-makers should be expected to probe the consequences of their decisions – whether they result in positive or negative impact, and to examine which impacts are most material. Stewarding commitments into action and improved performance requires leadership from the top. 

Twenty-first century governance puts the essential questions of impact (positive and negative) at the centre of decision-making. For boards, this is an active, dynamic process of setting direction for strategy, and making impact an explicit dimension of performance expectations. The board’s role includes ensuring the organisation’s incentives are set around which impacts matter and that culture, people and remuneration, investment and divestiture activity are oriented to optimise impact drivers. This stewardship role extends to accountability mechanisms, reporting and risk management that integrate sustainability and drive continuous improvement. 

We forecast that within a decade leaders will be asked to account for why their entire approach has not been oriented to avoid harm and do more good

As more companies and investors enter the arena, governance for impact will be a lynchpin to maintaining trust. We forecast that within a decade leaders will be asked to account for why their entire approach has not been oriented to avoid harm and do more good. There is a clear trend towards increasing focus on market integrity and regulation.

Those who act early can differentiate themselves positively in the market and progressively strengthen the evidence behind their commitments, strategies and offerings. Summa Equity, for example, having established track record for investing in solving global challenges, raised €2.3bn for its Fund III recently. BNP Paribas is among the banks predicting ‘a bumper year for sustainability-linked debt’. Green bond issuances are forecast to reach US$900bn in 2022, up 68.7% on 2021 with more and different actors looking to sustainability markets for capital.

Many leaders are still grappling with how to respond to the changing strategic and operating environment. This inspired us to explore how we could work with them to make it easier, by giving impact-oriented, 21st century governance content and integrity. We concluded that our collective experience in shaping impact markets could benefit leaders serious about impact by shortening the learning curve and turbo-charging their capacity to act effectively.

Embedding 21st century governance: three starting points

That brings us to the good news: enough groundwork has been laid to act now and with confidence.  For starters, here are three straightforward, concrete actions leaders can take to start embedding 21st century governance.

First, take ownership of impact; show that this is a leadership role and signal that it will inform decision-making from strategy to operations to risk management and beyond. Get directors and senior leadership on board and develop incentives that link to financial and impact outcomes.

Second, share your vision with stakeholders and listen to their views on where you shine bright, and where you need to up your game. Back words and commitments with action.

Third, conduct a board-level assessment of current business practices and products and understand your supply chains. Get clear about positive and negative impact on the environment and on people’s lives; then set out a clear roadmap for where you are heading and how you will get there, including by embedding impact goals into your strategy, management approach, reporting and governance.

Impact is mobilising people around the world and in the new order 21st century governance will be key. It’s time to get started. 

This article was published on Pioneers Post,14 June 2022

Image by Galyna Andrushko on freepik

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