Tag Archives: competitive advantage

Adapting to AI Legislation: Preparing Boards for the Challenges Ahead

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As artificial intelligence (AI) continues to transform industries, its implications extend beyond technology teams to boardrooms. The European Union’s Artificial Intelligence Act (AI Act) has emerged as a cornerstone of regulatory oversight, demanding not only compliance but also a shift in how boards of directors approach governance. This article explores the challenges, opportunities, and imperatives for boards as they adapt to the evolving AI landscape.

The Importance of the AI Act for Governance

The EU’s Artificial Intelligence Act (AI Act) is a landmark regulation aimed at ensuring the safe and ethical deployment of AI technologies. Proposed in April 2021 and finalised by EU lawmakers in December 2022, the Act is expected to come into force by 2025. It introduces a risk-based approach, categorising AI systems into prohibited, high-risk, and lower-risk groups, and mandates transparency, oversight, and accountability measures for certain applications.

The Act does not stand alone. Related directives, such as the EU AI Liability Directive, further extend accountability to both executive and non-executive boards. This dual regulatory framework requires organisations to integrate robust risk assessments and mitigation strategies into their governance structures.

For boards, the AI Act underscores the need to integrate AI risk governance into their oversight functions. Unlike deterministic systems, AI operates probabilistically, producing results with inherent uncertainties and potential biases. These characteristics challenge traditional risk frameworks, necessitating new expertise and adaptive governance practices.

Boards are thus tasked not only with ensuring compliance but also with fostering a strategic approach to AI adoption—balancing innovation with ethical considerations and operational integrity.

Bridging Executive and Non-Executive Perspectives

AI presents immense opportunities but also significant challenges, which often lead to misalignments between executive leadership and non-executive boards. Executives typically grapple with the technical complexities of quantifying AI risks and integrating these analyses into broader cost-benefit considerations. Non-executive directors, meanwhile, may focus on leveraging AI for strategic growth while underestimating the compliance and liability implications.

The European AI Liability Directive adds another layer of complexity, extending responsibilities for AI-related decisions to non-executive boards. Bridging these gaps requires fostering a shared understanding of AI’s strategic and operational implications. Boards should prioritise cost-risk-benefit analyses that account for the unique dynamics of AI adoption, such as volatile data dependencies and rapid innovation cycles.

Building AI Competence in the Boardroom

One of the most pressing challenges for boards is acquiring the knowledge needed to oversee AI effectively. A shared vocabulary and foundational understanding of AI concepts are essential starting points. Resources like ISO/IEC standards can provide this groundwork. For example:

  • ISO/IEC 22989 outlines fundamental AI concepts and terminology.
  • ISO/IEC 42001 offers guidance on AI governance and management practices.
  • ISO/IEC 38507 explores the governance implications of AI within organisations.

These standards serve as valuable references for boards navigating AI-related decisions. Structured learning programs tailored to board members can further help non-executive directors grasp the compliance, ethical, and strategic dimensions of AI. Consistency in training ensures alignment in perspectives and decision-making frameworks.

2025 Is Upon Us: Key Challenges Ahead

As the AI Act’s go-live date approaches, boards face several critical challenges:

  1. Quantifying New Risk Dimensions
    AI systems introduce unique risks, including ethical concerns, workforce impacts, and environmental effects. Standards and risk catalogues will play a pivotal role in addressing these dimensions.
  2. Scaling Governance for AI
    Moving from low-risk pilots to large-scale deployments necessitates robust governance frameworks. Boards must establish adaptive control mechanisms to monitor AI’s cost, risk, and benefit dynamics.
  3. Liability and Accountability
    The AI Liability Directive places non-executive directors under greater scrutiny, particularly in publicly listed companies. This heightened accountability demands proactive measures to ensure compliance while seizing opportunities responsibly.
  4. Balancing Innovation and Compliance
    AI’s rapid evolution requires boards to navigate the fine line between fostering innovation and meeting regulatory obligations. This involves anticipating market dynamics and preparing for unforeseen challenges.

Establishing adaptive governance mechanisms is essential, including implementing clear control points for AI’s evolution that ensure alignment with company values and compliance requirements, monitored by the board.

The Path Forward

To address these challenges, boards should consider the following actions:

  • Leverage Standards and Best Practices
    Frameworks like ISO/IEC 42001 and guidelines from international bodies provide actionable governance guidance.
  • Invest in Education and Training
    Ensuring all directors receive consistent AI-related training will enhance their ability to oversee AI strategy and compliance.
  • Establish Clear Governance Protocols
    Define control points and metrics for monitoring AI systems, from pilot phases to full deployment. Encourage better exchange between executives and non-executive directors to ensure unified oversight.

Conclusion

AI’s transformative potential brings both promise and complexity to corporate governance. As regulatory frameworks like the EU’s AI Act come into force, superficial knowledge of AI technology and compliance mechanisms is no longer sufficient. Boards must embrace deeper engagement with these issues, which may require them to delve uncharacteristically deep into technical and regulatory complexities.

The iauthor: 

Dr. Pamela Ravasio, Shirahime

Dr. Pamela Ravasio is the founder and managing director of Shirahime Advisory, a Corporate Development & Responsibility Governance boutique consultancy. She serves as fractional Chief Sustainability Officer for companies and advises boards on ESG and governance. With a background in roles like Global Stakeholder Manager, she played a key role in making the European outdoor industry a leader in future-proofing.
She currently is a member of INSEAD’s International Directors Network.

ESG x Governance (8): True Cost & Future Proofing – Amitava Guharoy

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This is the 8th of a series of interviews intended to help our IDN members grapple with the ESG topic.
In this episode, we delve into the experiences of a truly global individual, who is not only an (I)NED, but also a certified global climate risk professional.

Amitava Guharoy

Amitava Guharoy is an accomplished finance and sustainability expert with a 40-year career, having held senior partnership roles at PwC in India and Singapore (where he was Advisory Leader and Executive Committee member) and EY (where he held an Asia Pacific role). He has also served in C-suite roles, including as a main board director of a South African listed company. Amitava is an alumnus of Harvard and INSEAD, a certified global climate risk professional, and sits on multiple boards. His expertise spans finance, technology, investment, and sustainability, with a focus on climate change. He actively contributes as a judge and advisory board member in the Harvard community.

What role do you believe ESG plays in corporate governance and overall business success?

ESG is foundational to company governance and long-term success. Historically, companies like Unilever and Walmart began with a strong social focus alongside their commercial objectives, aiming to improve the communities they operated in. Today, businesses continue to hold a “license to operate” within society, meaning they must integrate societal and environmental considerations into their strategies.
Profitability remains key as financial sustainability is essential for any sustainability, but the question is: at what cost? Traditional profit calculations often ignore externalities—the hidden costs that are transferred to society, such as pollution or public health issues. For example, the fossil fuel industry has been reported to have received a subsidy of $7 trillion in 2022, of which $5.6 trillion accounts for external costs like pollution and climate impact. If companies were required to account for these externalities and did not receive these subsidies, their actual profits would decrease significantly. A consequential impact would be that fossil fuels costs would rise significantly impacting related energy costs.
ESG helps businesses address these risks. If companies continue to operate without considering environmental and social factors, they risk undermining long-term profitability. The growing costs of climate change are a major concern; reports indicate that by 2050, it could reduce global GDP by nearly 20%. Currently, cost of natural disasters alone affect global annual growth by 10-12%.
By integrating ESG principles, companies not only protect the environment and society but also ensure their own financial sustainability. Short-term profit maximization may seem appealing, but it’s ESG-driven strategies that secure long-term financial performance and corporate success. This is why ESG is foundational for both business sustainability and broader societal well-being.

From your experience in India, Singapore, and globally, how does ESG create value beyond compliance and risk management? Do you see any geographical differences in its impact?

Managing risk is essential, but it alone cannot drive a profitable business. Boards, particularly in Asia, often focus on compliance—ensuring legal and disclosure requirements are met—while neglecting ESG as a potential performance differentiator. In fact, ESG can elevate a company, distinguishing great companies from merely good ones.
Private equity firms, for example, increasingly prioritize ESG when evaluating investments. Strong ESG practices can lead to higher market valuations and improved EBITDA multiples upon exit. A McKinsey study shows that companies leading in profitability and growth and also leading in ESG enjoy a 1-2 percentage point higher Total Shareholder Return (TSR) than companies with similar profitability and growth but lacking the ESG performance.
Climate change presents a once-in-a-generation opportunity for transformation. Emerging technologies tied to climate action could drive significant returns. This is evident in regions like India, where, despite the lack of ISSB based ESG disclosure requirements, according to a recent report, 77% of C-suite executives believe sustainability practices boost revenues, and 84% see operational improvements as a result of ESG integration.
Beyond financial gains, ESG enhances employer branding, particularly among younger generations like Gen Y, Gen Z, and millennials, who prefer to work for sustainable companies. This has become a critical factor as companies face talent shortages.
On the regulatory front, ESG can either enhance or erode value. For instance, Southeast Asian palm oil producers will face challenges with the upcoming EU non-deforestation regulation, which could hurt non-compliant companies while benefiting those that adapt. Similarly, Indian steel companies exporting to Europe could see profits affected by carbon taxes (due to the upcoming CBAM regulations), underscoring the importance of aggressive decarbonization strategies.
In short, ESG offers opportunities for higher financial returns, operational efficiency, and competitive differentiation, positioning companies for long-term success in a changing global landscape.

In your experience, what is the biggest alignment gap in ESG between executive teams and non-executive boards? What recommendations would you give to address this gap?

A key gap between executive leadership and non-executive boards in ESG terms often stems from differing priorities. Executive teams are driven by the need to create value. If a company doesn’t adopt sustainable business practices, it may struggle to maintain its financial sustainability. As an example, private equity funded businesses without sustainable business practices may be difficult to sell or struggle to achieve appropriate value affecting overall returns for the fund. Conversely, companies with strong ESG strategies can command higher multiples and smoother exits.
However, non-executive boards in Asia generally have tended to focus more on compliance and risk management. Their mindset is often geared towards minimizing risks rather than actively seeking ways to enhance value through ESG initiatives. This can limit the company’s potential to fully leverage ESG as a driver of long-term performance.
To bridge this alignment gap, the mindset of non-executive directors need to shift from merely ensuring compliance to engaging with how ESG can enhance company value. Boards should move beyond a risk-averse approach and instead focus on how superior ESG practices can unlock value, create differentiation, and enhance profitability (without neglecting appropriate risk management). Private equity firms, with their shorter investment horizons, are well-positioned to lead this shift by demonstrating that companies with strong ESG practices can achieve better financial outcomes.
Non-executive Directors could help to facilitate the adoption of a more proactive role in ESG strategy. They need to work closely with executives to understand how ESG initiatives can contribute to both short-term returns and long-term value creation. By aligning themselves with the executives’ goals and actively contributing to ESG integration, non-executive boards can help drive better performance and optimize financial returns. Aligning the executive compensation plans to the value created by adoption of ESG strategies would also be important.
Ultimately, as ESG becomes a central factor in business success, this alignment between executives and non-executives will be critical for any company looking to stay competitive, profitable and sustainable going forward.

What are the key gaps in ESG understanding among board directors that need to be addressed for them to become ‘ESG fit’? How can boards effectively upskill in this area, and what should Board Chairs prioritise?

Training is critical for board directors to become “ESG fit,” but the right kind of training is essential. While it’s unrealistic to expect most board members to become climate experts, they should at least be capable of having meaningful discussions on ESG matters, just as they do on finance. Many directors are not finance experts, yet they contribute meaningfully to those conversations. The same standard should apply to ESG.
Peer influence plays a vital role in this learning process, often being more effective than formal training. For many senior directors, the idea of returning to the classroom can be daunting, especially for those who haven’t been in an academic setting for years. While structured training, like the one-day courses offered by the Singapore Institute of Directors, may help, they aren’t enough to drive significant change on their own. It’s the influence of peers within their network that often compels directors to take ESG seriously.
Board Chairs must prioritize finding ways to foster a cultural shift among directors. This could involve creating an environment where peer-driven learning is encouraged and providing incentives for directors to engage with ESG topics in a meaningful way. Moreover, the presence of just a few climate-competent directors on a board can significantly elevate the overall ESG competency of the group.
And then of course, institutions like INSEAD could also play a larger role in this process, particularly in regions like Asia, where ESG training is becoming increasingly important. As the business landscape evolves and executives push ESG forward, Board Chairs must ensure their teams are prepared to contribute to these discussions, even if the learning curve is steep. In time, this will enable boards to meet the growing demands of ESG effectively and strategically.

How do you differentiate between ESG literacy and true expertise on a board? Using your finance experience as an analogy, when is literacy sufficient, and when is expert knowledge essential for effective contributions?

The distinction between ESG literacy and expertise can be likened to the difference between general financial literacy and specialized knowledge in finance. For example, consider finance professionals serving on a board. They may be well-versed in the overall cost of capital, funding sources, and financial structuring. However, they need not be experts in M&A or leveraged buyouts (LBOs),which require a deeper understanding of specific financing challenges, structuring complexities, and market implications. These director are financially literate but do not possess the specialized expertise required for nuanced discussions on LBOs or M&As.
Similarly, in the realm of climate change and ESG, one can be literate without being an expert. A board member might understand the general causes of climate change, recognize that rising temperatures will adversely impact business operations, and identify related risk factors. However, they may lack the specialized knowledge needed to interpret complex climate models, understand how various parameters interact, or assess the nuanced implications of climate risks on long-term business strategy.
In this context, ESG literacy is sufficient for basic understanding and governance, enabling directors to engage in strategic conversations. However, true expertise becomes essential when the board faces critical decisions influenced by climate change or sustainability challenges. This distinction is crucial, as it determines how effectively a board can navigate ESG issues and integrate them into corporate strategy. As with finance, boards benefit from having a mix of literate members who can engage in discussions, alongside experts who can provide deep insights when needed. If required, they can be supplemented with expert external advice.

What do you see as the biggest ESG challenges for non-executive boards in the next decade, and how can companies effectively tackle them?

In the coming decade, non-executive boards will face significant ESG-related challenges, primarily driven by evolving mindsets, higher impact of climate and nature related challenges, deeper stakeholder engagement and technological advancements.
Firstly, the mindset of directors is expected to shift from a risk management focus to a more proactive, value-creating approach. Boards will increasingly recognize that effective ESG practices are not just about compliance but are integral to long-term business success. This change will facilitate more informed decision-making and a stronger commitment to sustainability.
Secondly, stakeholder engagement will become more comprehensive. Currently, many companies in Southeast Asia and India maintain relatively shallow dialogues with stakeholders. However, as the expectations of asset owners and managers converge, boards will need to actively engage in meaningful discussions with all stakeholders to understand their needs and perspectives. This shift is essential for aligning corporate strategies with stakeholder expectations, which will be crucial for future success by facilitating “Future- Seizing” rather than mere “Future-Proofing”.
Thirdly, ESG considerations will transition from being peripheral to foundational within corporate structures. Companies that excel in ESG practices will differentiate themselves, gaining competitive advantages, attracting investors, and potentially achieving higher market multiples and lower financing costs.
The adoption of new technologies will also play a pivotal role. Innovations in artificial intelligence, quantum computing, and sustainable materials are already emerging, enabling companies to develop more effective solutions for reducing emissions and improving sustainability. Boards must embrace these technological advancements to stay competitive and drive value.
Culturally, many Asian boards traditionally prioritize risk management, but this perspective must evolve. A shift towards recognizing the potential of sustainability as a transformative opportunity is necessary. For instance, allocating carbon costs to individual departmental profit and loss accounts can catalyse significant change, similar to how the allocation of working capital costs transformed financial management in companies. By addressing these challenges proactively, boards can position their companies for sustainable success in the future.

As we conclude this insightful conversation, Amitava underscores a crucial point: the role of organizations like INSEAD can significantly enhance the ESG landscape in Asia by leading initiatives in training and awareness. He emphasizes that ESG should not only be viewed as foundational but also as a strategic lever for driving corporate purpose and value. This perspective is vital for boards as they navigate the complexities of sustainability, highlighting the need for proactive engagement and continuous learning. By fostering a deeper understanding of ESG principles, boards can better position their companies for success in an increasingly competitive and environmentally-conscious market.

The interviewer: 

Dr. Pamela Ravasio, Shirahime

Dr. Pamela Ravasio is the founder and managing director of Shirahime Advisory, a Corporate Development & Responsibility Governance boutique consultancy. She serves as fractional Chief Sustainability Officer for companies and advises boards on ESG and governance. With a background in roles like Global Stakeholder Manager, she played a key role in making the European outdoor industry a leader in future-proofing.
She currently is a member of INSEAD’s International Directors Network.

ESG x Governance (7): Of Multinationals & Start Ups – Jukka Märijärvi

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This is the seventh of a series of interviews intended to help our IDN members grapple with the ESG topic.
In this episode, we delve into the experiences of a seasoned executive turned INED, with unique experiences in both, multinationals as well as start ups.

Jukka Märijärvi

Jukka Märijärvi is a seasoned executive based in Helsinki, Finland, with a rich background in both startups and large corporations, notably Nokia. He has held various roles, including oversight of customer interfaces and the mobile handset business, where he managed software quality and product roadmaps in a competitive market. With extensive board experience, Jukka brings a unique Nordic perspective and a strong ability to navigate challenges, making him a valuable contributor to strategic decision-making in non-executive advisory roles. His expertise in technology and product management enhances his effectiveness in governance and corporate oversight.

In your view: What is the relevance of ESG for overall company governance and success?

The relevance of ESG (Environmental, Social, and Governance) factors in corporate governance and success is increasingly significant. ESG has evolved into a basic competitive requirement for companies. Businesses must meet these criteria to attract investors, enhance brand value, and retain talent and customers.
Drawing parallels to the quality movement of the 1980s, some companies superficially embraced quality through slogans and merchandise rather than genuine commitment. Today, a similar trend is observed in how companies approach ESG—often focusing on public relations rather than meaningful action.
For example, while companies may announce ambitious projects in sustainable energy or diversity initiatives, the implementation can be slower and more costly than anticipated. This hesitation can stem from uncertainty about the return on investment or the effectiveness of these initiatives.
Moreover, the global political landscape influences corporate attitudes toward ESG. During periods of reduced regulatory oversight, such as under certain political administrations, businesses may deprioritise environmental concerns. This shift can lead to a decline in public enthusiasm for sustainable practices, as seen in the lukewarm adoption of electric vehicles despite growing climate concerns.
In summary, while the ESG framework is essential for modern governance, companies must adopt a genuine commitment to these principles. A proactive and authentic approach, rather than a superficial one, will ultimately lead to better governance and long-term success.

From your experience in the Nordic region with large corporations and start-ups, what unique value does ESG offer beyond compliance and risk management? Have you noticed geographical differences in its adoption?

In my experience, the Nordic countries are distinguished by a strong commitment to ESG principles, largely driven by a rule-based societal structure. This cultural inclination towards ethical responsibility and compliance is evident; once regulations are established, businesses tend to adopt and implement them proactively.
The value of ESG extends beyond mere compliance and risk management. It encompasses societal impact and corporate citizenship, fostering a sense of pride among employees and stakeholders. For example, the Finnish bank, Ålandsbanken, integrated environmental initiatives into its strategy by actively supporting the health of the Baltic Sea, financing annual initiatives, and linking CO2 footprints to credit card spending via the Aland Index. This not only garnered positive publicity but also instilled a sense of purpose among its employees.
The index was originally developed at Ålandsbanken in 2016, later becoming a stand-alone company and is now used by more than 90 banks.
In larger corporations like Nokia, ESG has long been taken seriously, demonstrated by their commitment to reducing environmental footprints and enhancing brand reputation. Initiatives were embedded in their operations well before regulatory requirements emerged, with sustainability forming part of their corporate ethos. The annual Nokia Quality Award, for instance, has included an environmental category since 1996.
In contrast, start-ups often focus on immediate operational challenges, such as scaling their business, which can result in ESG considerations being deprioritised. However, innovative start-ups that incorporate ESG into their business models, such as those focused on wastewater reduction, can achieve significant operational efficiencies and cost savings.
Geographically, I’ve observed that the prioritisation of ESG varies widely. In regions with stringent regulations, businesses are more likely to embrace ESG as a core value, while in areas with less oversight, there may be a tendency to overlook these considerations. Understanding the regional context is thus crucial for companies seeking to effectively integrate ESG into their governance frameworks.

Where is the biggest alignment gap in ESG between executive leadership teams and non-executive boards? What recommendations do you have for non-executive boards to address this gap?

A significant alignment gap often exists between executive leadership teams and non-executive boards regarding ESG initiatives. This gap can arise from several factors, including the lack of familiarity with ESG issues among board members. Many boards consist of members with diverse expertise, but ESG might not be among their strengths, leading to questions about the authenticity and depth of reported ESG activities.
One challenge is the detachment of board members from the day-to-day operations, which can hinder their understanding of the true ESG landscape within the organisation. Board meetings are infrequent, and the information presented may not reflect the realities “on the ground.” Consequently, the executive team, being closer to the operations, often has a more comprehensive understanding of the company’s ESG performance.
Moreover, while executives may be committed to ESG strategies, the focus on high-level targets can sometimes overlook the critical details necessary for effective implementation. There is often a disconnect between strategic intentions and actual execution, reminiscent of the common misconception that announcing a strategy equates to its implementation.
To bridge this alignment gap, I recommend that non-executive boards take a proactive approach to ESG oversight. Establishing an ESG committee led by a non-executive director can provide an independent perspective on ESG matters. This individual would ideally possess relevant training and expertise, ensuring that ESG issues are treated with the seriousness they deserve.
Additionally, it’s essential for boards to integrate ESG discussions into their regular agendas and ensure that performance metrics are well-defined and measurable. This approach will facilitate better understanding and monitoring of ESG initiatives, ultimately aligning the board’s oversight with the executive team’s operational realities.

Given the disparity in ESG understanding among board directors, what are the key areas for improving ESG competency, and how can boards effectively upskill? What should be the priorities for Board Chairs?

The disparity in understanding ESG among board directors is significant, often stemming from varying levels of knowledge and experience. For boards to be ‘ESG fit,’ it is crucial to close the gap in knowledge, particularly regarding how ESG impacts overall corporate strategy and performance.
The culture of the board plays a pivotal role in this process. The chair of the board is key; they must be well-versed in ESG topics and actively engage with stakeholders, including investors, to gain insights and support. By fostering a culture of continuous learning and curiosity, chairs can encourage directors to explore ESG issues more deeply.
To efficiently up-skill, boards can leverage existing committees to incorporate ESG matters into their agendas. This approach allows for a bottom-up integration of ESG into board discussions. It’s essential that board members recognize the importance of ESG as a strategic imperative rather than merely a compliance checkbox.
One challenge is the tendency for directors, particularly those with deep expertise in specific functional areas, to dominate discussions and steer focus towards their interests. This can create silos and prevent a holistic view of ESG. Therefore, it is vital for the board chair to encourage a balanced dialogue that considers broader corporate strategy alongside ESG implications.
Board chairs should prioritize creating an environment where ESG is treated as a strategic issue and not just operational detail. This may involve curating educational opportunities, bringing in ESG experts for presentations, and ensuring that discussions remain focused on the bigger picture rather than getting lost in minutiae. Ultimately, a well-rounded understanding of ESG will empower boards to make informed decisions that align with stakeholder expectations and long-term sustainability goals.

What do you foresee as the key ESG challenges for non-executive boards in the next decade, and how can companies effectively address them?

Reflecting on the future, I believe the biggest ESG-related challenge for non-executive boards will be the persistent gap between commitments and tangible outcomes. Despite the growing emphasis on ESG, many companies still struggle to translate their lofty goals into actionable plans and measurable results. The concern is that the environmental situation continues to deteriorate, and without a clear understanding of key performance indicators (KPIs) and the relevant actions to address them, progress will remain stagnant.
A significant issue here is the concept of accountability. Each year, general meetings release boards from liability, which can create a disconnect between long-term ESG goals and the actual responsibility for achieving them. This results in a lack of ownership and accountability for future outcomes, as current board members may not be around to see the implications of their decisions or commitments.
To address this challenge, boards need to cultivate a culture of accountability, where ESG is integrated into the fabric of corporate strategy. This includes not only setting ambitious goals for 2040 or 2050 but also ensuring that there are mechanisms in place for tracking progress and holding individuals accountable. In this regard, companies could benefit from a framework that ties executive compensation and performance metrics to ESG outcomes, thereby creating incentives for board members and executives to prioritize these issues.
Moreover, companies should actively engage with stakeholders, including investors and regulators, to stay informed about evolving expectations and best practices in ESG reporting. This could involve collaborating with peers to share insights and experiences or investing in training programs that enhance the board’s understanding of ESG implications.
Ultimately, the responsibility for ESG should not be seen as an isolated issue but rather as an integral part of overall corporate governance. By embracing this mindset, boards can better navigate the complexities of ESG challenges and drive meaningful progress over the next decade.

As we conclude, Jukka Märijärvi highlighted that it’s essential to recognize the dual role of AI in the ESG landscape and its potential to enhance ESG reporting through efficient data processing and insights. However, he also cautioned against the environmental impact of AI technology, particularly its high energy consumption associated with advanced hardware development. This discussion underscores the need for boards to balance technological advancements with sustainable practices in their governance strategies.

The interviewer: 

Dr. Pamela Ravasio, Shirahime

Dr. Pamela Ravasio is the founder and managing director of Shirahime Advisory, a Corporate Development & Responsibility Governance boutique consultancy. She serves as fractional Chief Sustainability Officer for companies and advises boards on ESG and governance. With a background in roles like Global Stakeholder Manager, she played a key role in making the European outdoor industry a leader in future-proofing.
She currently is a member of INSEAD’s International Directors Network.

ESG x Governance (6): Law, Compliance, Value Add – Déborah Carlson-Burkart

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This is the sixth of a series of interviews intended to help our IDN members grapple with the ESG topic.
In this episode, we delve into the experiences of a lawyer and INED, and explore the insights she has gained in the course of her career.

Déborah Carlson-Burkart

Déborah Carlson-Burkart, specialises in strategic legal, compliance, and governance matters. She chairs committees for transforming companies and has advised on corruption, fraud, and money laundering investigations throughout her career, guiding regulated, listed, and private firms through transformative processes, especially under regulatory scrutiny.
Currently serving as an independent non-executive director at Visana Insurance Group, Fintech Bank N26, and technology company RUAG International, Déborah holds a law degree from the University of Zurich, an LL.M. from Duke School of Law, and a board certification from INSEAD. Fluent in four languages, she also lectures on governance and compliance at the University of St. Gallen and the Swiss Board School.

In your view: What is the relevance of ESG for overall company governance and success?

As a lawyer with decades of experience in compliance and governance, I’ve come to firmly believe that ESG factors are pivotal for overall company governance and success.
Having worked extensively with companies facing compliance challenges for over 25 years, I’ve witnessed first-hand the significance of ESG. It’s no longer a niche concern but a critical component of every company’s risk management strategy.
Effective governance demands the integration of ESG factors into decision-making processes, serving as a compass for navigating risks and seizing opportunities. This is particularly relevant in three key areas:

  • Risk management,
  • Long-term sustainability, and
  • Stakeholder management.

Companies that prioritise ESG are better equipped to navigate complex regulatory environments and capitalise on emerging opportunities. Even in highly regulated sectors, such as someones I am involved in, ESG-focused companies demonstrate greater agility and resilience.
In my capacity as a guest lecturer, I emphasize the importance of ESG, drawing from practical examples. Across the boards I serve on, ESG has become a central agenda item. While each company may prioritize different aspects of ESG based on its operations, the overarching commitment remains consistent.

For instance, at Beyond Gravity, a company specializing in satellite technology and aerospace, we’ve set ambitious ESG goals, aiming to lead the industry by 2025. This involves a targeted focus on environmental and social aspects, such as supplier monitoring and energy efficiency.
Similarly, at N26, an online bank operating across Europe, our emphasis is on governance and social responsibility, addressing compliance issues and fostering inclusivity.
Finally, with Visana, a comprehensive insurance provider, we’re undertaking specific projects to enhance our ESG performance, from sustainable investments to fostering a diverse and equitable workplace.
In each case, our approach to ESG is tailored to our company’s profile and priorities, reflecting a commitment to responsible and sustainable business practices.

What is the value add of ESG, including compliance and risk management, in overall company governance and success?

In my view, illustrated by the examples I’ve just shared, ESG initiatives offer more than just compliance and risk management—they add tangible value. While compliance and risk management are crucial and easily recognizable benefits, there’s a deeper impact. Allow me to elaborate with a case involving Viasana, where we’ve made numerous investments due to our surplus cash.

Firstly, integrating ESG principles enhances long-term financial performance. This, in turn, elevates our reputation across multiple dimensions. Reputation matters greatly—it not only attracts investors but also makes us an employer of choice. In an era where finding suitable talent for meaningful projects can be challenging, being an attractive employer is paramount.

Effectively, by prioritising ESG considerations in decision-making, we become a sustainable and trusted entity. This not only appeals to investors but also helps in risk mitigation and fosters sustainable growth. The potential benefits are considerable, though it’s important to acknowledge that there are costs involved. However, in my assessment, the positives outweigh the negatives.

How is the perception of ESG shaped differently across various markets?

Geographical disparities in ESG implementation, stem from diverse factors, ranging from regulatory frameworks to cultural norms and stakeholder expectations.
In Europe, for instance, regulatory standards are notably stringent compared to other regions. This is partly due to e.g. a lower tolerance for corruption, as evidenced by the region’s position in corruption indices. Compliance with regulations necessitates a shift in perspective, pushing us to consider long-term goals beyond immediate gains.

To illustrate, at Beyond Gravity, we’ve set an ambitious target to achieve a zero environmental footprint by 2026. While this goal is challenging, we’ve developed a clear roadmap for decarbonization. Operating across 14 different countries adds complexity, but we’re steadfast in our commitment.

Adapting our implementation strategies to accommodate geographical nuances is imperative. However, our overarching objective remains consistent—achieving a zero or net-zero environmental footprint by 2026. We’re making progress, and with continued effort, we’re optimistic about reaching our target.

Based on your experience, where do you see the biggest alignment gaps between executive leadership teams and non-executive boards regarding ESG? What are your recommendations for non-executive boards to address these gaps?

The issue of misalignment between the board and the executive or leadership team is not exclusive to ESG management but rather a pervasive concern. Misalignment can manifest in various areas, and with ESG, given its relatively new prominence, there’s heightened awareness of potential discrepancies. Conversely, in financial matters, there’s often an assumption of alignment, only to realise differences during implementation or when objectives aren’t met.

I perceive three primary sources of misalignment:

  • A lack of understanding,
  • A lack of focused attention, and
  • Divergent goals.

Understanding ESG is complex, encompassing environmental, social, and governance factors with no universally agreed-upon definition. Consequently, there’s a learning curve, compounded by busy schedules, which can lead to knowledge gaps within both the board and executive ranks.

Additionally, competing priorities vie for attention amidst already full agendas, diluting focus on ESG initiatives. Moreover, executives may prioritize short-term gains, while boards often espouse a longer-term, sustainability-oriented perspective, inherently misaligning priorities.

To mitigate these challenges, many companies, including ours, have appointed dedicated managers for ESG, ensuring visibility and cross-functional connectivity. Aligning management and board goals is crucial.

One effective strategy we’ve adopted at one of the companies involves tying the annual bonuses to achieving company specific ESG targets. This approachfosters alignment across the organization, with bonuses linked to collective ESG success.

While not without its complexities, this strategy streamlines efforts toward a shared objective. It underscores the importance of cohesive goal-setting and incentivise alignment across hierarchical levels.

Where do you see the biggest gaps for board directors to become ‘ESG fit’? How can boards efficiently upskill in this regard, and what should be the priorities for board chairs?

Let’s address your second question first. The key to advancing without stepping on anyone’s toes lies in continuous education. INSEAD, for instance, offers a wealth of opportunities for ongoing learning. The courses and resources available are exceptional and immensely beneficial. In my view, just as with any emerging field, board directors must prioritise continuous education to refine their skills and remain effective.

ESG literacy, akin to financial literacy, should be a fundamental requirement for board members. Additionally, as technology like AI becomes increasingly significant, AI literacy will also become essential. In our INSEAD cohort (IDP 29), we’ve fostered a close-knit community. Regular meetings every two weeks allow us to share insights, best practices, and even failures. This collaborative approach ensures that each member stays updated and continually improves.

Continuous education is particularly crucial in the realm of ESG. Given its complexity and evolution, one never truly finishes learning. Engaging with peers and staying abreast of developments ensures that fundamental skills are consistently honed.

Returning to the question about chairing boards, a simple yet effective strategy is to prioritize ESG on the agenda. It’s imperative that ESG principles are deeply understood and integrated into every aspect of board and management decision-making.

As a chair, personal commitment to continuous improvement is vital. For instance, I chair three nomination and compensation committees, emphasizing the importance of ongoing education through these committees’ agendas. Additionally, being involved in two audit committees ensures that ESG reporting is meticulously overseen. However, it’s crucial to remember that execution is just one aspect—cultivating a culture shift towards ESG is equally essential.

In essence, like many endeavours in life, the energy invested in ESG initiatives yields growth. It requires a mindset shift and the dedication of at least one committed individual on the board to champion this cause. Mere box-ticking won’t suffice; what’s needed is a genuine commitment to play by the rules and sometimes a cultural transformation. .

Looking forward, what will be the biggest ESG-related challenges for non-executive boards, and what can companies do to address them?

When considering the most significant risks from a board perspective, three critical areas come to mind, based on my experience overseeing major companies:

  • 1. Environmental Risk Management: Especially when operating internationally, the challenges posed by environmental concerns loom large. Effectively addressing these issues is paramount to our operations.
  • 2. Social Responsibility Assurance: The landscape of social responsibility evolves rapidly, with geopolitical shifts and societal changes. Remaining vigilant and responsive to these changes is essential to upholding our commitments.
  • 3. Governance Oversight: While governance may seem straightforward, the reality is that boards often face challenges in critically assessing their own practices. Vigilance in governance starts at the top and requires continuous evaluation.

In today’s business environment, companies must navigate a myriad of regulations and expectations related to sustainability, diversity, inclusion, ethics, and transparency. The breadth of these considerations is vast and requires constant attention.

ESG serves as a tool to achieve and be held accountable for sustainability, a goal that transcends generations. Cultivating a sustainability mindset among decision-makers and influencers within the organization is crucial. They need not hold formal positions of authority but should influence and advocate for responsible and sustainable practices, recognizing our duty to stakeholders present and future.

I consider myself fortunate to collaborate with CEOs who recognize ESG as not just a moral imperative but also a sound business strategy. Their leadership underscores the potential for ESG initiatives to yield returns on investment and drive growth.

Indeed, sustainability presents not only a responsibility but also an opportunity for innovation. Across industries, including our endeavours at Beyond Gravity, in insurance, and banking, we explore how sustainability can catalyse the development of new products, services, markets, and revenue streams. We leverage sustainability to chart a course towards success and resilience.

The interviewer: 

Dr. Pamela Ravasio, Shirahime

Dr. Pamela Ravasio is the founder and managing director of Shirahime Advisory, a Corporate Development & Responsibility Governance boutique consultancy. She serves as fractional Chief Sustainability Officer for companies and advises boards on ESG and governance. With a background in roles like Global Stakeholder Manager, she played a key role in making the European outdoor industry a leader in future-proofing.
She currently is a member of INSEAD’s International Directors Network.

ESG x Governance (5): The CSRD Challenge – Céline Abecassis-Moedas

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This is the fifth of a series of interviews intended to help our IDN members grapple with the ESG topic.
In this episode, we delve into the experiences of a seasoned business academic who is also an INED, and explore the insights she has gained in the course of her career.

Céline Abecassis-Moedas

Céline Abecassis-Moedas is an academic and corporate leader, with over 25 years of experience spanning academia, consulting, and board positions. She is the Dean for Executive Education and Associate Professor at Católica-Lisbon School of Business and Economics, and serves as a non-executive director on the boards of CUF (chair of the innovation and sustainability committee), Vista Alegre Atlantis in Portugal, and Lectra (Chair of the remuneration committee and member of the CSR committee) in France. She also was on the board of Europac in Spain and of CTT and Grrenvolt in Portugal. She earned her PhD from Ecole Polytechnique, a MSc from Dauphine University (France), and is also an INSEAD IDP-C certified independent non-executive board director.

How does ESG, particularly with the emergence of the CSRD, impact company governance and success?

In my view, the relevance of ESG for overall company governance and success is multifaceted. Firstly, it’s a requirement. Legislation is evolving, and 2024 is a pivotal year as companies will need to report increasingly detailed ESG information due When I say it’s a requirement, I’m referring to the Corporate Sustainability Reporting Directive (CSRD). The first cohort of large companies will need to report on their fiscal year 2024 activities under this directive.
From my perspective, obtaining this information is quite challenging, especially for SMEs, which are often suppliers to the companies on whose boards I serve. It’s like we’re reinventing accounting or creating a parallel system of accounting. We must report all these new metrics, and many companies are unsure where to begin.

What’s the added value of ESG beyond compliance and risk management, considering your board and academic experience, and do you see any geographical variations in its importance?

Yes, it’s an interesting topic. Last week, during our Advanced Management Programme (AMP)—the most senior programme we have— I invited a guest speaker (a female seasoned expert in the area) to discuss the Corporate Sustainability Reporting Directive (CSRD) because it’s a major topic. She titled her talk “CSRD: Challenge or Strategic Opportunity,” which aligns perfectly with what we were considering. While not all companies view it as an opportunity, some definitely do.
For example, I serve on the board of a company in technology for the fashion industry that focuses on computer-aided design and manufacturing. They report on metrics such as energy usage and improvements over time. This company structurally benefits the environment by helping its clients reduce waste. However, since it’s their clients’ waste being reduced, it doesn’t directly reflect on the company’s own sustainability metrics, which is frustrating. The fashion industry is highly polluting, but by enabling on-demand fashion and reducing waste, this company contributes to sustainability. This exemplifies how CSRD can be seen as an opportunity rather than just a challenge.
On the other hand, I also sit on the board of a ceramics company, which uses a lot of energy. The recent rise in energy costs has been a financial nightmare for them. They’re now considering changing their energy sources to become less dependent on traditional, more polluting options. For them, CSRD is more of a challenge, but it can become an opportunity.
I notice more industry-specific differences rather than geographical ones. My experience is mostly in continental Europe—Portugal, France, and some in Spain. I suspect the topic is less pressing in the US, but I don’t have detailed information on that.
I am an optimist and believe CSRD presents opportunities for those who understand what is at stake. In the last two years, I’ve seen the growing importance of our role as non-executive directors in this area. While executives drive these initiatives, we have a significant responsibility bring external perspectives and best practice from company to company. This makes our work as non-executives particularly valuable.

What alignment challenges do you observe between executive leadership and non-executive boards in terms of ESG, and what recommendations would you offer to address these?

In terms of alignment, I also see the need to balance the Environmental (E), Social (S), and Governance (G) aspects of ESG. When people talk about ESG, they often prioritize the Environmental part, while the Social and Governance parts receive less attention. Two companies where I serve on the board—a tech company, and a healthcare company—are very people-oriented. Both have faced the issue of doing a lot in terms of social initiatives but not reporting it effectively. It’s a pity because their efforts are not visible. They needed to make an effort to report better, use more KPIs, and show their social impact more clearly.
The environment part is always present and significant but difficult to address. As for governance, it’s often assumed to be well-managed, but it should receive more focus. This could be because governance was previously well-handled, or because the other two areas need so much attention that governance is overlooked. I believe it’s a bit of both.
In governance, two things are particularly important, diversity and processes. Diversity on the board is essential, beyond just gender diversity. Diversity is becoming mainstream, but it’s crucial to extend it beyond gender. More than anything it is the existence of processes that guarantees good governance.
Finally the balance between the three and they interact is core and needs to be looked at.

What are the main gaps for boards to become ‘ESG fit,’ and how can they efficiently up-skill directors? What should Board Chairs prioritize?

What I’ve been observing more and more from the inside is that, in the last year or two, companies are increasingly hiring for ESG roles. They are bringing in consultants and hiring dedicated ESG personnel within the company. It’s like we’re creating a second accounting system and now building the team for it.
If you compare it, today a company might have an accounting team of 25 or 30 people for regular accounting and only two or three for ESG. It will take time to build up to the same level, but that’s where we are getting. As both a board member and an academic, I see that even the most dedicated companies often don’t know where to start. The CSRD rules are very demanding, still being designed, and this creates a significant challenge. Companies often don’t know where to begin. They are seeking help from consultants, but even the consultants are still learning. This situation is both exciting and a bit scary because we are all learning as we go.
For boards to be “ESG fit,” the biggest gap to close is in understanding and capability. Boards need to prioritize building their own knowledge and skills in ESG. This means Board Chairs should create ESG training for board members, hire or consult with experienced ESG professionals, and integrate ESG considerations into the core strategy of the company.
Efficient and effective up-skilling can be achieved through dedicated training programs, learning from best practices, and ensuring ongoing education on the evolving ESG regulations and expectations. It’s essential to foster a culture of continuous learning and adaptation to keep up with this rapidly changing field.

What are the primary ESG challenges ahead for non-executive boards, and how can companies address them effectively?

I think the big challenge is not just having a strategy and an ESG strategy separately, but rather integrating ESG as an essential part of one cohesive strategy. Not all companies are ready for this integration, and in some cases, it might require significant changes that are daunting for them.
The role of the board is essential here. Because we have a broader perspective and can bring insights from across different companies, non-executive directors have a unique responsibility. For example, I serve on the boards of three companies with different activities, but the discussions we have in one often become relevant in another.
One example I’m proud of is how we integrated ESG into the variable remuneration of the CEO at one of the companies. As the Chair of the Remuneration Committee and a member of the ESG Committee, I led multiple discussions to include ESG criteria in the CEO’s variable pay. For 2024, 50% of his variable remuneration will be based on ESG performance, which is a significant change. Next year, we plan to extend this to a few more executives and eventually further throughout the company. This makes ESG truly strategic; if variable remuneration is tied to both EBITDA and ESG, it changes priorities significantly.
Another critical issue is getting the right information, which is often challenging. In the private healthcare group that I sit at the board of, we discovered that anaesthetic gases had the same carbon footprint than their entire fleet of vehicles. Initially, this seemed like a mistake, but after thorough checks, including comparisons with NHS data, it was confirmed (Desflurane has a significantly higher global warming potential compared to Sevoflurane). We then had to convince doctors to switch to the gas with the lower carbon footprint. This example illustrates how crucial it is to have accurate information; without it, significant impacts can go unnoticed.
In summary, for boards to be “ESG fit,” they need to integrate ESG into their core strategy and ensure accurate information flow. Prioritizing ESG training, hiring knowledgeable professionals, and setting clear ESG metrics in executive compensation are key steps. This approach not only aligns short-term actions with long-term goals but also makes ESG a fundamental part of the company’s success.

Could you provide an overview of University’s upcoming CSRD preparation program, its objectives, target audience, and key features?

The programme is still a work in progress, we aim to launch it by October. It will be called ESG Strategy and Reporting. The idea is to address the needs of the many companies that will soon be required to comply with the CSRD. For example, in Portugal, around 1,200 companies will need to report, a significant increase from the current number. The top 50 companies probably have the resources and knowledge, working with large Audit firms. However, the remaining thousand companies probably don’t know where to start.
Our goal is to build a programme that helps guide these companies through compliance. We’re still finalizing the length and cost because it needs to be accessible. We also want to involve the right experts, as few people have deep knowledge of the CSRD requirements. The programme will include expert instruction and numerous guest speakers from top companies that have already begun this process. We aim to create a community where participants can share best practices and support each other during and after the program. These companies are not in competition; they are facing the same challenges and would benefit from working together.
We see this as a significant opportunity, but we acknowledge that auditors are already moving into this space, which is only fair. We will need to collaborate with them to ensure the programme’s success.

The interviewer: 

Dr. Pamela Ravasio, Shirahime

Dr. Pamela Ravasio is the founder and managing director of Shirahime Advisory, a Corporate Development & Responsibility Governance boutique consultancy. She serves as fractional Chief Sustainability Officer for companies and advises boards on ESG and governance. With a background in roles like Global Stakeholder Manager, she played a key role in making the European outdoor industry a leader in future-proofing.
She currently is a member of INSEAD’s International Directors Network.