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How to get environmental sustainability on the agenda of directors of boards?

Datum:09 mei 2022
Auteur:Julia Prömpeler
How to get environmental sustainability on the agenda of directors of boards?
How to get environmental sustainability on the agenda of directors of boards?

As companies play a key role in building a sustainable economy and society, they are urged to contribute to managing local and global environmental changes. To what extent companies are well on track with this in large depends on those sitting at the top of these companies, because CEOs and directors of the board are the ones making strategic decisions about (ir)responsible corporate behavior. After placing the majority of responsibility for this predominantly on CEOs, directors of boards are increasingly also considered a key puzzle piece. But what guides their focus towards sustainability goals?

For one, currently more external mechanisms are put in place to align the focus of directors to sustainability goals. This spring, the European commission proposed a ‘Corporate Sustainability Due Diligence Directive’ that outlines companies’ duties in address negative environmental impacts. It prescribes directors’ duty to take climate change and human rights into account as an integral part of their due diligence duties. Next to that, investment funds are updating their policies for companies they invest in and put the spotlight on directors’ environmental sustainability focus. For example, AXA Investment Managers announced just last month that it wants board directors to have a proven track record of managing environmental and social issues to drive value. They further declared they would vote against board members' re-election if it felt they were lacking sustainability focus. External pressures for directors to focus on sustainability is therefore clearly growing.

At the same time, we also know that effectiveness of external rules and regulations is limited. Especially in situations of uncertainty and ethical dilemmas, personal preferences tend to outdo external guidelines. Research centering around how to increase pro-environmental behavior, repeatedly highlights that the best indicator for how people behave are their set of values [1]. This is because values both knowingly and unconsciously influence how we process information and form decisions [2]. The importance of values for environmental outcomes has earlier been shown in people’s private domains [3], and related to strategic focus of CEOs[4]. In our research, we now tapped into how values of directors relate to their environmental sustainability focus and how directors are influenced by values of the CEO. With a sample of 176 Dutch directors, we assess the role of values representing environmental goals - biospheric values –, and those representing personal goals such as success – egoistic values. Interestingly, we find that directors’ focus on environmental sustainability is unrelated to egoistic values, but higher when their biospheric values are stronger. For directors with strong biospheric values, focus on environmental sustainability was especially pronounced when their CEO holds strong egoistic values. Possibly this is because directors, whose role it is to ensure that CEO decision-making is in the best interests of the firm, feel the need to compensate a lack of focus on environmental sustainability from the CEO.

So how to proceed? While external regulations towards ensuring that directors attend to environmental and social concerns are clearly an important and valuable step, they are likely not sufficient. That makes additional approaches necessary. Further discussions about whether personal (unobservable) characteristics can and should be given attention to in the composition of boards and management teams might be fruitful. Also, given that values do not change easily or quickly, these insights once more show the importance of long-term strategies targeting environmental literacy. Increasing environmental literacy and with it possibly environmental values through education and workshops might be another route to help current and future directors to truly tackle environmental questions and dilemmas and making responsible decisions in the boardroom.

Julia Prömpeler (j.b.j.prompeler rug.nl) is a final-year PhD candidate at the Department of Human Resource Management and Organizational Behavior. She works with Prof. Dr. Floor Rink, Prof. Dr. Janka Stoker, and Dr. Dennis Veltrop on the intersection of corporate social responsibility and behavioral corporate governance with a focus on boardroom dynamics.

References:

[1] Steg, L., & De Groot, J. I. (2012). Environmental values. In: The Oxford handbook of environmental and conservation psychology

[2] Chin, M. K., Hambrick, D. C., & Treviño, L. K. (2013). Political ideologies of CEOs: The influence of executives’ values on corporate social responsibility. Administrative science quarterly, 58(2), 197-232.

[3] Steg, L., Bolderdijk, J. W., Keizer, K., & Perlaviciute, G. (2014). An integrated framework for encouraging pro-environmental behaviour: The role of values, situational factors and goals. Journal of Environmental psychology38, 104-115.

[4] Boone, C., Buyl, T., Declerck, C. H., & Sajko, M. (2020). A neuroscience-based model of why and when CEO social values affect investments in corporate social responsibility. The Leadership Quarterly.