What is the biggest barrier to sustainable development? There are many, but I’d like to flag one that I think hasn’t received enough attention so far: boards of directors of companies and asset managers. Too many are only focused on short-term financial performance at the expense of both the organization they represent and our global society and planet. It is a result of a fundamental misperception about what is their “fiduciary duty.” A simple step, however, can be taken to dramatically improve this problem. And it is a simple one-page “Statement of Significant Audiences and Materiality” published every year by a company’s board of directors.

Executives at the world’s biggest companies, as well as those at the largest international asset owners and managers, are recognizing that “sustainability” is something that can no longer be compartmentalized in a specialist department that often has “second-class” citizenship status in the organization. Instead, material environmental, social, and governance (ESG) sustainability issues are increasingly being factored into corporate and investment strategies at the highest level. It is resulting in genuine sustainable strategies, instead of mere sustainability programs that are viewed as side shows to the company’s business. And evidence is mounting that sustainable strategies generate long-term financial returns. These strategies executed at scale by the world’s largest companies and investors will also contribute to planetary benefits, as laid out in the Sustainable Development Goals ratified by the Untied Nations in September 2015, and as committed to in the Paris COP21 climate change accords.

What big companies and big investors do is as important as what most countries can do in creating a more sustainable world. Consider the fact that last year the revenue of Wal-Mart, the world’s largest company, was at $486 billion — greater than the GDP of 86% of the countries in the world. And while there are thousands of asset managers, the top five control 20% of all the world’s assets under management and the top 50 control 60%. Clearly the world’s largest companies and investors can be a tremendous force for good. But are they showing leadership in this regard? Too often, on both the company and investor side, they are not.  

A sustainable strategy for a corporation requires long-term focus and rigorous analysis in order to determine the limited number of ESG issues that are material for that company. And “Materiality” is a fundamental but elusive in corporate reporting. In the end, it is entity-specific and based on judgment. It is the responsibility of the company to determine what is material and, I would argue, ultimately it is the responsibility of the company’s board of directors.

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