Sustainability governance refers to the systems through which a company’s board and executives address material sustainability risks. Typically, these systems of corporate leadership, management and supervision respect the environment, serve common interests and ensure a company’s productivity and impact are maintained in the long term, aligning value creation with sustainability values. This article explores the importance of sustainability governance in animal agriculture.
Why sustainability governance is a material financial risk for investors
Sustainability governance is a vital component of a company's performance. Incorporating social and environmental goals into corporate governance systems helps embed material sustainability risks into financial decision-making, enhancing an organisation's ability to comply with regulatory changes, mitigate operational and reputational risks and generate long-term value.
To evaluate a company’s sustainability governance as part of the Coller FAIRR Protein Producer Index, FAIRR assesses whether protein producers:
formally mandate their board of directors to oversee sustainability issues;
conduct a materiality assessment;
have board members with sustainability expertise; and
link executive remuneration with sustainability performance.
FAIRR also looks at whether a company has a strategic approach to innovation and policy engagement in relation to sustainability issues and how memberships with trade associations, alliances and coalitions inform its sustainability governance.
The strength of a company’s sustainability governance is often a key indicator of how a company performs across the most material environmental and social issues it faces.
The 15 companies that ranked highest in the 2024 Coller FAIRR Protein Producer Index had a formal mandate for their boards of directors to discuss the sustainability issues covered by the Index, compared to just 53% of the 15 companies that ranked lowest.
Moreover, 13 of the highest-ranked companies had set variable executive remuneration linked to sustainability goals, compared to only two companies in the bottom 15.
Linking monetary compensation to sustainability performance sends a strong signal to the market and stakeholders that a company fully embeds sustainability issues into its business strategy. The practice also provides a greater incentive for executives and upper management to pursue goals that contribute to long-term value creation.
Summary
Sustainability governance can help investors to determine a company’s overall approach towards sustainability issues.
Reference
[2] PricewaterhouseCoopers. (2023). Sustainable corporate governance (Whitepaper). PwC Germany.
