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Introduction

There is an increasing demand from stakeholders for companies to become more sustainable in their operations, considering the needs of society and the environment in addition to their traditional bottom line, effectively widening the definition of the key stakeholders. With that drive, corporations must be open to reformation starting at the governance level and propagating all the way down to the operations. There is an intrinsic link between corporate governance and corporate sustainability, it all starts with the composition of the decision makers and the proper communication of the vision and goals. Companies must also adopt strategies and frameworks for long term change.

The Drive to focus on Corporate Sustainability

Corporate sustainability (CS) focuses on long-term growth and encompasses not just profitability, but people and planet as well (Sphera, 2020). These are known as the three pillars of CS or the triple bottom line (TBL) and are of equal importance. According to Sphera (2020), CS assumes a corporation has identified clear goals surrounding the three pillars and answers the question as to how the company plans to meet those goals over time.

Recently, there has been a huge demand by company stakeholders to incorporate awareness of social and environmental impacts in the company’s operations (Chen & Wang, 2011; Tjahjadi, et al., 2021). This drive can be attributed to the many scandals associated with businesses over the past decade bringing light to the unethical practices of companies and the resounding call for better corporate governance (CG) (Montagnon, 2019). The Volkswagen emissions scandal of 2015 is a good example of this and shows the extent of the damage that can be done to a company’s reputation and bottom line (Colvin, 2020). The drive to focus on the TBL is also a consequence of stakeholder preference and their desire to support companies that directly impact the things they believe in (with particular focus on social and environmental issues) (Philip Morris International, 2020).

A high corporate sustainability performance (CSP) can yield the following benefits for a company (Malley, 2020):

•  Cost savings – through the efficient use of energy and resources
•  High credibility/trust rating and brand reputation – today, stakeholders evaluate companies based on their values and ethics WRT to ongoing social and environmental issues.
•   Corporate customers’ requirements – many companies today have policies in place to conduct business with suppliers that meet certain environmental qualification criteria. CS focus ensures that a business meets these needs.
•   Employer of choice – many job seekers (especially the younger generation) are attracted to companies that are socially and environmentally responsible

These factors are crucial for gaining a competitive advantage over competitors in the same industry and as such can be very attractive for businesses to adopt (Shell Chemicals, 2010).

The Role of Corporate Governance in Corporate Sustainability Performance

Board of Directors Composition and the effect on CSP

With the drive to achieve high CSP established, let’s turn to CG and its impact on CSP. Abdulrahim, et al. (2020) found through their research consisting of sustainability reports from established companies in the Indonesian Stock Exchange that there exists a direct and positive correlation between the structure of the board and sustainability performance. Their findings revealed that a larger board size resulted in higher positive CSP. They also concluded that the presence of a larger number of non-executive directors (NEDs) and so the greater the level of independence within the board composition also resulted in significantly higher positive CSP. This behavior is corroborated by Hussain, et al. (2018) and Kouaib, et al. (2020) who, in addition, found that the more diverse the board composition is with respect to gender, the higher its CSP. In fact,  Kouaib, et al. (2020) proposed the model in figure 1 below and concluded that the various factors (gender, NEDs, size, meeting frequency and CEO duality) all positively affected the CSP. Schneider Electic, rated one of the worlds most sustainable companies in 2021 (Scott, 2021), demonstrates this principle. Their board of directors (as of April 2021) comprises of 9 independent directors out of 12 overall and the ratio of men to women is almost 50% (Schneider Electric, 2021).

<Image Here: Proposed BOD structure>

Acceptance of the Existence of Wider External/Internal Stakeholders

There is a growing shift within corporations from shareholder-focused models to stakeholder-driven approaches (Forbes, et al., 2013). As can be seen from the history of shareholder models, there exists a mounting pressure to increase shareholder value by any means necessary, ignoring the ethical boundaries that are built into the shareholder theory (Smith, 2003). Stakeholder-focused models and by extension the TBL recognizes that companies have a primary responsibility to, not just their shareholders, but to their overall stakeholders (Mind Tools, 2017). This includes everyone that is affected by the decisions made by the company (shareholders, customers, employees, suppliers, etc.) (Beauchamp, 1988). McDonald & Puxty (1979) goes further to say that corporations should include society and the environment as stakeholders as their operations have significant impact on both. Corporate sustainability is dependent on a corporation’s ability to recognize their responsibility to all their stakeholders and with that mindset, it can make the necessary adjustments to its governance structure in order to foster a sustainability-focused operation (Salvioni & Gennari, 2016).

Setting Sustainability Targets

After committing to operating in a sustainable manner, corporations must then put things in place to ensure that their (and stakeholder) objectives are met (Asif, et al., 2011). This change needs to incorporate more than the implementation of sustainable initiatives and should ideally involve reformation at the governance level that drives the creation and enforcement of policies that are geared towards sustainability (Klettner, et al., 2014). Corporate governance should define the boundaries that the company should operate within and those boundaries should be focused on long-term sustainable goals (Kaeser, 2010). Those goals must stem from the creation of a clear vision with sustainability at its core and is critical to achieving high corporate sustainability performance. The vision can then lend to the company’s mission, objectives and overall strategy and serves to pave the path for the organization to follow towards sustainable operations (International Federation of Accountants, 2011).

A Framework for Corporate Sustainability Performance

Doughnut Economics

The doughnut of social and planetary boundaries (Raworth, 2017)

Kate Raworth shared her vision for what it means to operate sustainably in the form of the Doughnut. The Doughnut is a visual representation of the social foundation and environmental ceiling in which all of humanity operates and defines the safe zone where humanity can thrive (Doughnut Economics Action Lab, 2020). Figure 2 shows a depiction of that vision. The inner and outer rings are meant to be barriers to social injustice and environmental devastation. The emergence of the Doughnut spawned from the increasing number of discontented students at the narrowmindedness of the legacy economic framework and the drastic need for a change in mindset that catered to the unique needs of the 21^st century (Raworth, 2017). This new economic mindset is the foundation of Doughnut Economics.

The mindset has the potential for high corporate sustainability performance but requires a shift in the way corporations measure performance. The traditional method of using GDP as the indicator of progress ignores the social and environmental aspects (Ceil, 2020). Figure 3 shows the SWOT analysis of the Doughnut Economics framework.

<Include SWOT Image>

From the SWOT analysis, the strengths of the model lie in its overall consideration for the TBL and the assurance of sustainable development.

The weaknesses lie in the fact that the model is generic (The Alternative UK, 2018) and, although based on science (Raworth, 2017), lacks the actual guidelines and actions that must be implemented in order to achieve sustainability (Dax, 2019). In addition, there has been concern for the ability for non-Western countries to adopt the model as it is based on “Western thinking” (Gudynas, 2012).

Despite these weaknesses, the model is designed to be dynamic and evolving and (as was its inception) it encourages the younger generation to think up innovative ways for operating within the confines of the Doughnut. It is flexible enough to be applied to many different units.

While these opportunities make the model seem enticing, there are a few barriers that threaten its adoption. Underpinned as its main weakness, the model lacks clear definitions for how to achieve the main goals and as such makes it difficult to understand and implement. Along with that, the model depends on persons to forego surmounting wealth for social and environmental stability – something that has proven to be a major blocker (Dax, 2019).

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