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Sustainability

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Governance & Executive Engagement in Retail

​In a letter to S&P 500 CEOs, BlackRock CEO Larry Fink writes "At companies where ESG [environmental, social and governance] issues are handled well, they are often a signal of operational excellence. BlackRock has been undertaking a multi-year effort to integrate ESG considerations into our investment processes, and we expect companies to have strategies to manage these issues. Recent action from the U.S. Department of Labor makes clear that pension fund fiduciaries can include ESG factors in their decision making as well."

Governance & Executive Engagement in Retail

​As with any business function, oversight, accountability, and engaged executives are essential to ensure the sustainability function is executing properly. Formal governance establishes Board oversight, ensuring the Board understands the company's sustainability risks, sets corporate sustainability policy, and is accountable to implement that policy; Executive Councils help develop and implement strategy. Formalizing these governance mechanisms is among the significant accomplishments retailers highlighted in 2015. And for the year ahead, retailers say educating retail executives on sustainability is a priority.

Keys to Successful Governance in Retail

​As the definition of fiduciary duty evolves, Boards of Directors are taking responsibility to manage sustainability-related risks and opportunities. A survey of thirty-five U.S. retailers found seventeen percent had a Board Committee with formal oversight of social and environmental issues—BestBuy, Kroger, Safeway, Sysco, Tiffany & Co., and Walmart. Globally, the proportion increases to thirty-four percent.

Firms with Board Oversight of Sustainability Issues by Industry Bar Graph

Figure 1. Percentage of Firms with Board Oversight of Sustainability Issues, by Industry

Unilever Global Chairman, Michael Treschow, describes an “evolutionary process” of increasing regulations and public demands for transparency, accountability and governance on social and environmental risks.​

 

Investors are driving this trend, asking Boards to be transparent and accountable for managing social and environmental risks, and often expecting to engage directly with Boards on sustainability issues. Without such oversight, long-term shareholder interests are not protected. Going further, companies gain direct benefits from establishing Board oversight. Given its responsibility for business strategy, risk management, and legal compliance, the Board takes a longer-term view of the company’s interests, relative to its management, and is well positioned to leverage sustainability to mitigate risk and drive revenue.

Unilever Global Chairman, Michael Treschow, describes an "evolutionary process" of increasing regulations and public demands for transparency, accountability and governance on social and environmental risks

 

How Do Retailers Establish Board Governance? A Board can formalize its sustainability governance by explicitly acknowledging that its fiduciary duties include oversight of sustainability issues and the consideration of broader stakeholder interests. It then agrees to integrate sustainability into its duties and decisions. Early on, the Board will want to align on the issues most material to its business and customers—from climate change and sustainable products to human rights and supply chain management—and agree on the stakeholders, other than its investors, that are important to engage. Key activities for the Board include:

  • Allocating time on the Board agenda to review sustainability topics;
  • Integrating sustainability considerations into standing Board committees, such as risk management, auditing, and the nomination and compensation of executives;
  • Providing executives and management with regular briefings on the company's sustainability priorities; and
  • Publicizing the company's priority issues and stakeholders (an annual "Statement of Significant Audiences and Materiality" is a new concept for Board-level public disclosure).

In evaluating sustainability issues, the board will want to understand how and when an issue may:

  • Impact or enhance the company's strategy
  • Necessitate board level oversight and accountability
  • Influence risk identification and management
  • Require changes to board composition and expertise​

 

The retail sustainability function can play an important role, galvanizing Board level interest by providing training on the sustainability issues most material to retail, and providing exposure to the changing expectations of investors, customers, and retail employees. Leading companies such as Nike regularly train Board members on sustainability issues to help them better assess the company's business performance.

Keys to Successful Executive Engagement in Retail

​The second governance mechanism is executive engagement, a key ingredient for success. Engaged executives are well positioned to direct their teams and resources, and in turn to catalyze employees across the company. In 2015, 10% of retail respondents to a RILA survey stated their sustainability goals are set by corporate-level executives. Another measure of executive engagement—the link between executive compensation and sustainability performance—shows 25% of U.S. companies link some portion of executives' compensation to overall progress on sustainability, a link RILA defines as a leadership practice.

How Do Retailers Engage Executives? Executive Sustainability Councils are often the largest asset to a sustainability program. Councils allow companies to move beyond isolated projects and to better integrate sustainability goals across business functions, and drive execution on those goals. RILA benchmarking in 2015 describes how retailers use Executive Councils. Councils meet quarterly, and comprise CFOs, COOs, and EVPs from merchandising, private brands, HR, and legal to ensure alignment between sustainability and business strategies. To implement sustainability goals, retailers use functional-level Councils, which typically meet monthly. These councils include SVPs from procurement, supply chain, logistics, store operations, legal, IT, and others. In some instances, retailers also engage NGO partners to bring external perspectives into the Executive Sustainability Council. 

Maturity Steps for Governance & Executive Engagement

To enable retailers to benchmark their governance initiatives, RILA and the CRC's Retail Sustainability Management Leadership Model includes a specific dimension on governance and executive engagement:
Governance & Executive Engagement
Initiating
  • Ownership and accountability for sustainability is confined to one function (e.g., Environmental Health and Safety)
Progressing
  • Dedicated sustainability executive to design, manage, and continuously improve sustainability program and initiatives
  • Sustainability council comprises senior leaders from key functional roles and meets periodically
  • Accountability is clearly defined for sustainability goals and initiatives
Excelling
  • Board and company leadership develop and/or endorse goals and initiatives to improve sustainability
  • Sustainability council comprises executives, defines priorities, and periodically reports to senior leaders
  • Senior management's sustainability roles are clearly defined
Leading
  • Board oversees and endorses sustainability goals and initiatives
  • Dedicated executive champion for sustainability appointed by board
  • Executives from all of the relevant parts of the business are engaged (e.g., strategy, innovation, finance, HR, legal, marketing, sourcing)
Transforming
  • Board and key executives held accountable for sustainability performance
  • Dedicated Chief Sustainability Officer reports directly to CEO
  • CSO & CEO partner to demonstrate business relevance of program to investors and other stakeholders

Additional Information

​Some relevant resources, case studies, and collaborative opportunities are listed below. RILA's Sustainability Executive Program provides more resources on governance and executive engagement.

Resources

Educational tools

Case Studies

Retailer deployment examples

Get Involved

Collaborative opportunities & other resources

Visit www.rila.org/sustainability for more tools and resources.

Last Update: 8/30/2016 8:35:32 AM