Speakers were Roshana Arasaratnam, Executive Director at UK Government Investments, Scarlett Brown, Head of Think Tank, Board Intelligence, Gail Le Coz, Deputy Chair, Audit and Risk Management Committee at City of London Corporation and Jock Lennox, NED and Audit Committee Chair (and SID) at Barratt Redrow plc.
The CFO and audit committee play a key role in delivering a company’s ambitious net zero and sustainability strategy and objectives. This session explored good practice, practical examples and latest thinking around this challenging topic.
Where to start
Certain laws and regulations eg, the Companies Act s172 (on promoting the success of the company) make not taking account of the environment in decision-making a breach of board members’ statutory duties.
A good place to start is to take a step back and look at the big picture value chain. It is the role of the audit (and/or risk) committee to all understand reporting requirements. To do this, the relevant committee needs to look beyond financial returns and consider wider business and stakeholder strategy. This well help determine whether you are reporting on the right things. Next consider your processes and data sources – start with assumptions then consider how to going about seeking assurance to ensure the information you are collating is accurate.
Small cap and AIM companies do not have the same resources as a large company. The starting point for these businesses is to identify what the responsibilities are for your company and sector. You can then look to work with a third party e.g. the Carbon Trust to help with collating evidence and data to demonstrate how you have made being sustainable a critical board mission. Smaller companies can also take inspiration from larger companies when starting their own journeys, adapting as required for the business’s needs. The key for these businesses is not to worry about making mistakes – the important thing is just to start and then to learn as you go.
Where should sustainability sit at board level?
There is no one size fits all approach to incorporating sustainability into a company at board level. Not everyone has to be a sustainability expert on a board, but you should look to fill any gaps. This is key to effective internal controls (note that from January 2026, the Corporate Governance Code 2024 Provision 29 will require boards to include a statement of effectiveness of internal controls in their annual reports). This means sustainability needs to be integrated into the overarching business plan so that opportunities and risks can be identified and addressed.
As boards often have a number of committees, there is a risk that sustainability can fall through the cracks if it is not properly accounted for in business strategy. However, in some sectors there are obligatory sustainability standards and requirements that boards of these companies have to be aware of. Whether sustainability matters are allocated to finance, risk, audit, or another place, is at the discretion of the company, but it needs to be firmly within the business model and addressed at the top.
The panel recognised that most audit committees and CFOs today are aware that sustainability is not just a business-critical issue in terms of risk, but also an opportunity. Mathematically minded people, such as CFOs and people on audit committees, are well placed to pull together the data and numbers to quantify and address these issues.
The audit committee will naturally have a role to play given that sustainability issues can pose great risk to an organisation. A risk with delegating sustainability only to the audit committee is that the focus can become too much on reporting due to the inherent reputational risks. Sustainability is a business issue, not just a reporting issue. Conversely, the risk with spreading sustainability across several committees is creating silos - sustainability should be treated as an organisation-wide issue. Structure will differ depending on the needs of different organisations and sectors, for example, SME and AIM structures will look different to the structures of large companies. Appropriate resource allocation is important to make sure that sustainability stays on the board agenda.
Again, there is no one size fits all approach. It is important to ensure that your approach is appropriate and proportionate – whether this means allocating matters to an individual, a committee or the full board.
Helpful resources for addressing sustainability at board level
There is a prediction that in the interest of global data reports on the transition to cleaner energy, ESG ratings providers will develop increasingly comprehensive reports. For example, in the building sector this could include working out the price of the carbon used to create the bricks themselves, not just the emissions caused by the building work. This will make the landscape more complex. To help deal with emerging technologies and processes, bring in external experts where necessary and be plugged into networks like Chapter Zero.
To help boards better understand the landscape and navigate future shifts, the University of Cambridge Institute for Sustainability Leadership (CISL), in partnership with the global law firm DLA Piper, have created a set of 20 pivotal questions for boards to use as a tool to facilitate discussion and prepare strategically.
Communicating sustainability issues effectively across the organisation: a two-way conversation
Cascading sustainability messages through a business can be tough. Some people will be more astute to sustainability than others when issues are not directly linked to their role on a surface level.
Treating sustainability messaging as a top-down communications exercise can help to engage staff. This can take the form of monthly, quarterly and annual reports. Establishing internal reporting frameworks can be a driver of change and collating this data helps with external reporting as well. Senior leaders and management can also engage with staff on the ground to have open and two-way dialogue on what the issues are and how they can be addressed.
Collaboration and transparent communication are more important than ever to ensure that sustainability stays on board agendas.
