Michael Ling: How Can a Sustainability Committee Better Look at Potential Risks?

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Aug 19, 2019
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Michael Ling: How Can a Sustainability Committee Better Look at Potential Risks?

Deputy company secretary at CLP Holdings Limited reflects on sustainability committees for this month’s Salzburg Question for Corporate Governance In the latest feature for the Salzburg Questions for Corporate Governance, Michael Ling (pictured) considers how sustainability committees can better prepare for potential risks

This article is part of the series, the Salzburg Questions for Corporate Governance by the Salzburg Corporate Governance Forum

Taking a step back from the usual management-led risk reporting process, a sustainability committee should actively work with management to look at potential risks. But when establishing a sustainability committee, you should ask, is the committee appropriately set up to deal with sustainability issues and potential risks?       

Composition

Diversity is key. Ideally, there should be a good balance of executives and non-executives, longer serving independent directors with a deeper knowledge of the company as well as recently joined independent directors with a fresh perspective, directors who are more strategically minded, and directors who are particularly sensitive to stakeholders’ concerns. 

Does a committee require directors with specialist experience, such as climate change or technology? Not necessarily. The more important point is for the committee to acknowledge whether there is an expertise or knowledge gap. If there is, the committee can call on experts or specialist advisors to advise its members. The challenge of having a specialist background director is whether the experience or expertise is relevant. In addition, there is a risk of that specialist member being looked to as the default owner or director responsible for that issue.    

Support

A sustainability committee should have support both from within the organization and externally. Internally, the committee should be well supported by the management’s risk reporting, enabling its members to have a good sense of the key risks identified by management. The committee should also have access to external specialist advisors to provide a different perspective and to constructively challenge the committee and  management’s thinking and approach to the way they look at risks.  
Stepping outside the committee boardroom setting

Management-led risk reporting provides a certain view on risks and where things stand. Each committee member should take the opportunity to meet with representatives from middle management to understand from their perspective what are the challenges and risks. Discussing with the people who are involved in assessing the risks and writing up the risk management reports will provide committee members a multidimensional understanding of the relevant issues.     

A workshop approach

While boards have strategy days and offsites, a sustainability committee should have similar workshop-like sessions to take a better look at the organization’s emerging risks. This should go beyond a management-led briefing or a deep dive review. Participants should include senior management as well as representatives from middle management, specialist advisors, other committee chairpersons and, of course, committee members. Smaller breakout groups should be arranged to encourage participants, especially those in middle management, to speak up on sensitive topics.    

The workshop approach will facilitate a more collaborative effort between the committee members and management to work together in assessing what the potential risks are, how these risks should be monitored and managed and what the corresponding opportunities are  for the organization. Committee members can get to shape things early on in the process as opposed to being invited to comment and provide feedback on a management formulated risk assessment.

To better look at the longer-term sustainability issues and potential risks, a sustainability committee and representatives from management should critically examine what will the business look like in the long term? What are the longer-term goals and objectives of the company? By taking a long-term and multidimensional perspective, the committee will be better placed to look out for those potential risks.   

To get the best from their directors, companies ought to work with their sustainability committee members much harder.

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Michael Ling is the deputy company secretary for CLP Holdings Limited. He oversees the day-to-day functions of CLP Group Corporate Secretarial and works closely with the Board of Directors of CLP Holdings and the Board Committees. Prior to taking up this position in 2016, he was the legal counsel on the international team of CLP Group Legal Affairs for over four years.  Before joining CLP, he was in the group legal function of AIA Group Ltd and was involved in the restructuring of the AIA group of companies. He also has extensive experience in corporate transactions and advisory work, including public and private mergers and acquisitions and capital markets work in Hong Kong, London, and Beijing. He holds an LL.B. and B.Com. from the Australian National University and has completed the IMD’s Applied Leadership Program. Michael is a Fellow of Salzburg Global Seminar.

The Salzburg Questions for Corporate Governance is an online discussion series introduced and led by Fellows of the Salzburg Global Corporate Governance Forum. The articles and comments represent opinions of the authors and commenters and do not necessarily represent the views of their corporations or institutions, nor of Salzburg Global Seminar. Readers are welcome to address any questions about this series to Forum Director, Charles E. Ehrlich: cehrlich@salzburgglobal.org To receive a notification of when the next article is published, follow Salzburg Global Seminar on LinkedIn or sign up for email notifications here: www.salzburgglobal.org/go/corpgov/newsletter