Sustainability governance: from form to substance

The sustainable development of a company depends much more on well-structured governance than on the commitment of individual directors to want to achieve it. Understanding the strategic implications of this deliberately paradoxical assumption can help to focus on some of the challenges that Italian companies are facing from the point of view of integrating sustainability into business.

We are living in a period in which the relaxation of the reporting rules introduced so far by European directives (CSRD and, in different ways, CSDDD) has led some companies to believe that sustainability, understood as full consideration of environmental and social impacts in the pursuit of economic results, was almost a fad rather than the most effective way to generate value for all stakeholders. Governing sustainability effectively, while remaining a complex challenge, is actually a decisive opportunity to improve competitiveness. The experience of Italian and European companies has highlighted in recent years three main dimensions for a solid and deep integration of sustainability into governance mechanisms.

Well-designed governance structures

Governing sustainability effectively requires structures. Forms of governance that must be well designed to be effective in themselves and, at the same time, compatible with the nature of the company in which they are inserted. Without improvising, every company is called upon to understand how defined roles and dedicated responsibilities can be inserted, starting from the skills already present. The establishment of an internal board committee with powers to sustainability is a well-established practice in listed companies on the Italian scene.

According to data from the "Sustainability Governance" Observatory conducted by ALTIS and Sustainability Makers, 87.5% of FTSE-MIB companies have adopted it. The numbers of smaller companies, but this is a significant indicator. Which, however, is not enough. It is important that the Committee is properly designed, with a clear distinction of roles, a competent and ideally independent chairmanship and a composition in line with the strategic nature of the issue.

One of the indicators that help to understand how much a company is on its way to maturity in this field is the integration of ESG indicators into remuneration systems. This is a key step to further engage responsible top management in the management of socio-environmental issues.  In fact, only formal governance of sustainability increases the risk that it will be perceived externally only as a "story" devoid of substance.

Organisational structure and channels of dialogue: information and collaboration

For the same reasons, a good governance model cannot be limited to the Board of Directors. It only works when structures – even lean ones – are inserted into the existing business context. In order to facilitate coordination with decision-making mechanisms. In this regard, it is necessary to gradually root in the interaction between the top management and the operational structure. For this reason, the presence of a managerial component that works in support of the committee favors a more efficient and less bureaucratic approach to achieving sustainability goals.
The link between governance and business processes is given by the sustainability manager. A fundamental figure to promote the quality and frequency of interaction between top management and business, without which sustainability risks remaining just a formal expression present in reports and policies. The creation of an information circuit integrated with the structure that is responsible for collecting data, making available an assessment of the risks and opportunities in the field, can stimulate the awareness of top management and encourage their transformation of the indications received into strategic choices.

Compliance, risk management and internal control.

Today, those involved in compliance, control and corporate governance also find themselves having to manage risks and issues related to sustainability, which require an integrated view of business and sustainability objectives. Risk management, compliance with reporting rules and the identification of roles and monitoring methods is therefore essential and, even in this case, an adequate organization is needed. But these are not, of course, just formal aspects: integrated compliance implies the ability to identify roles, responsibilities and safeguards even outside the traditional boundaries of risk management, looking at areas such as the supply chain, environmental impact or social inequalities. For this reason, dialogue with stakeholders is a fundamental pillar of the sustainability governance system. It is a concrete reflection of how a company recognizes and takes into account the expectations of the different actors involved in its activities. This exchange is essential to grasp, understand and fully integrate the needs of its interlocutors.

Towards substantive governance

These considerations bring out a very clear message with respect to sustainability governance. Companies that integrate sustainability into their processes, also achieving higher ESG performance, do not limit themselves to form and build a solid governance architecture, capable of dialoguing systematically and transparently with the organizational structure and stakeholders, integrating compliance and the enhancement of skills. Sustainability, in this sense, becomes a transversal lever of corporate governance. Boards and top managers can abandon improvisation. By focusing on an integrated and responsible system to move from form to substance and from the risk of washing – of any color – to results.