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 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 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.