How to tackle Sustainability on Boards?

20 years ago, the Board of Umicore took a crucial decision on business transformation with the explicit ambition to evolve from a mining company to a sustainable company. Can you share us your experience on this change of management and of strategy, stakeholder management, company culture, …? And what is necessary to accomplish this transformation?

Today, Umicore is known as a sustainable company due to the nature of its activities, such as recycling, or production of cathode materials for electric vehicle batteries, or production of catalysts to prevent NOx emissions. But the company has a history of more than two hundred years. Known then as Union Minière, it was a mining and smelting company. It is not a company that would have been described as sustainable in the past. 20 years ago, the Board of Directors, led by Karel Vinck and CEO Thomas Leysen, turned their shared vision into a conscious decision to transform this company into a sustainable company and even a leader. Today, Umicore's story is a famous example of how a Board with a shared vision and belief, together with management, can truly drive change and create value for all shareholders. The message to all directors is: do not underestimate the change you can bring to the company; you can shape its future.

What did this transformation look like and based on this practice what are the tips and suggestions you would address in general based on your Sustainable Business Transformation process?

First, you need to explicitly embed sustainability in the company's strategy. This can look different for different companies. It depends on what you want to do: change the way you do business, change the focus, or change the direction of your business altogether. How you do it will depend on the company's activities, its core competencies and where it is on its journey. The key is to embed it in your strategy, as we have done.

The expectations of stakeholders on corporate responsibility and sustainability and their voice evolved significantly over the last 20 to 30 years. How do companies like Umicore prioritise its sustainability initiatives in response to these changing demands?

Expectations have indeed evolved significantly in recent years and will continue to evolve. Shareholders still demand short-term financial returns. Stakeholders today also expect much more than just a financial contribution. And it is not just NGOs that are demanding this, but all stakeholders, including shareholders, employees, customers, and financial institutions.

All these stakeholders want different things in their own interests. You cannot do everything at once. It is a combination of a continuous understanding of what stakeholders expect and how those expectations affect your business, and then having strong leadership to decide what to prioritise. It is a balancing act. This journey is hard and requires a lot of work. You also need to be agile and adaptable.

When is a separate Sustainability Committee (SC) in the board needed and how is this working? You launched last year a SC.

We created a Sustainability Committee alongside the Audit Committee (AC), the Nomination & Remuneration Committee (NRC) and the Investment Committee (IC). Prior to that, the full Board and the AC discussed the issue at least twice a year. Given the importance of sustainability to Umicore, we decided to create a separate Sustainability Committee which meets four times a year.

As sustainability touches on many aspects of the business, it is important to clearly define what the Sustainability Committee deals with and how it interacts with the other committees and the full Board. For example, legislation requires non-financial disclosure to be the responsibility of the audit committee. The audit committee is responsible for risk management (including ESG risks). The NRC is concerned with ESG expertise and performance, which should be a requirement for new members, and executive compensation must include a significant ESG component.

Given these overlaps, we have decided to have at least some joint meetings between the different committees, depending on the topic. Each committee has at least one member who also sits on the SC, so everyone knows what we are talking about.

Is there a need for a SC and will it stay on its own?

Depending on where you are as a company and how important sustainability is to our business, a special committee may not be what you need. INSEAD’s research shows that boards are struggling to find the right governance structure. (See Sustainability Governance at the Board)

They analysed different sustainability governance models, ranging from none to fully integrated sustainability governance. For example, with 1 ESG expert on the board, an ESG expert on each committee, a separate ESG committee or all members with ESG expertise. At Umicore, we have ensured that each committee includes at least one member who also serves on the sustainability committee. However, our aim is not for the sustainability committee to be a permanent fixture; rather, it will exist until the entire board can effectively oversee ESG matters. It's important for each organization to identify the model that best fits its needs. Additionally, directors can request training in sustainability, as we do at Umicore. We expose all our directors to various ESG topics and provide them with training opportunities."

The EU has published the European Sustainability Reporting Standards (ESRS) for the end of 2023. This is a big challenge to implement. How are you tackling it in your organisation?

Tackling is the right word for the challenge ahead. The introduction of the ESRS is an important milestone towards greater transparency and accountability in sustainability reporting.

At Umicore, sustainability has been integrated into reporting for years and this has required real teamwork between the business units and the different corporate functions. But I cannot deny that the new regulation and standards bring a whole new set of challenges and are a different ball game. The EU has taken bits and pieces of various voluntary standards and put them together to create a new playbook. So how do we approach it?

Like everyone else, we first had to understand how what we had to report differed from what we had been doing. We did a classic gap analysis. Secondly, we are carrying out the new dual materiality assessment required by the regulation to determine what is specifically material to us as a company and what we will disclose accordingly. Define the issues that are important to you.

And then you start to implement. There are a number of challenges, including collecting and consolidating data, developing new processes and systems, managing change, and putting in place the necessary controls to ensure auditable quality. It takes a lot of effort from an organisation and people who do not like to focus on compliance. It is not the most fun part of the job when you have a million other things to do. It is not everyone's top priority. The best practice is to break it down and take it one step at a time. Best practice is to look beyond the compliance aspect of reporting and see it as an opportunity to communicate your sustainability ambitions and achievements more clearly internally and externally.

Based on your experience and expertise, what do you think a competent and effective board member in different types of companies should look like when it comes to sustainability? And do you have any suggestions for further development?

As a board member, you want to lead your company on a sustainability journey, and you need to find the right path for your company. There is not one right way. Each company must decide what role it can and wants to play. It is not about ticking boxes or setting unachievable targets. Find the middle ground so that people are motivated.

As a director, make sure ESG is on the agenda, and when you set targets, be specific and bold, challenge management but remain realistic.