A Conversation with Seewhy Co-Founder and Managing Partner Pascale Simon – Sustainability Considerations for Board Members

Thierry:

I am delighted to present our second video on the megatrends in the private equity industry, featuring one of my favorite topics, sustainability and ESG. Today, we have the honor to welcome Pascale Simon. Pascale is one of the founders of Seewhy, a firm whose mission is to support boards in continuously improving their governance and effectiveness with a complete onboarding of the sustainability dimension.

Pascal is an expert in this field and making her the best person to share insights on this topic. On behalf of White & Case, a very warm thank you Pascal.

Pascale:

It’s a pleasure.

Thierry:

One of the significant megatrends impacting private equity is the increasing importance of environmental, social and governance consideration in PE investment. This is not merely a trend, but a critical criterion for the sustainability of businesses. Pascal, why should ESG and sustainability be strategic considerations for board members?

Pascale:

There are many reasons. I would say, there are three drivers. 

The first one is a positive driver, is the scrutiny from all stakeholders to ensure that the sustainability dimension is embarked in the corporate strategy and it goes from institutional investors who are really transitioning from simple compliance to ensuring that the best practices in that domain are applied. It concerns the employees who are really making the choice on the employer's attitude towards the sustainability dimension and the positioning of the company. It also concerns the suppliers through the scope three consideration. And of course, the clients who are more and more doing ethics choice.

The second driver is a more defensive one, and it's the board's director role to protect the reputation of the company. And you and I, we know it's a vital asset of any company, and it's based on transparency and ethics. And any pitfall in that domain can have really severe consequences for the company. We know some well-known examples around the globe.

The third driver is a mandatory one, and it comes from the increasing regulation and the legislation in that domain. And, if the last CSRD, the European regulation is applied in different countries, it means that not only the board as a collective organ, but the board director as individual will be held responsible if companies are not taking the right action towards the impact of the company on the environment.

Thierry:

Thank you, Pascale, for those very insightful comments. Let's now move to our second question, what challenges do face board of directors when incorporating sustainability criteria?

Pascale:

I would say, the first challenges is a lack of knowledge and understanding of the risk and opportunities linked to sustainability. Board of directors are relying still too much on the information provided by the management. They don't have a good understanding of the global shift that it implies for the company. And, the lack of insight to understand the sustainability strategy developed by the management and moreover, to oversee its implementation.

The second challenge is, comes maybe from the tension between the long term investment it requires to embark the sustainability dimension and the short term financial pressure from the shareholders. And so, it's really difficult to find the right balance between the two.

The third dimension, is maybe that there is not enough space for the sustainability dimension on the board agenda in the discussion within the board during the debate and the fourth challenge is mainly coming from the lack of courageous decision in the board. It requires a lot of courage to do it. And sometimes we lack of that courage within boards.

Thierry:

Thank you, Pascale. We’re now approaching the end of our session with our final question. Based upon your experience, what are your recommendation for best practices for board members?

Pascale:

I would say the first one linked to the first challenge is really to ensure that the boards can rely on the adequate and the relevant information. And so it's, what is the level of knowledge of the board? And assess that knowledge. It is to ask for external expert advice. It's to check who is providing the information to the board. 

I would say the second recommendation is linked to the governance and the board structure. The board list nominate or could nominate at least one sustainable champions, or maybe two.

The board can set up a committee, a sustainability committee that is reporting to the board ideally. It can also embark the dimension within the existing committee, mostly the audit, the risk, or the nomination committee. But at the end, we can hope that all boards directors will feel responsible and will master the sustainability dimensions. 

I think the third recommendation would be to define shorter, tangible, sustainable objectives because it's very difficult for boards to feel responsible for long term objectives. They don't see the impact of those objectives on the short term, and who from the management or from the board will still be there in 2030, or even 2050? Nobody, and so there is no accountability for those objectives.

And finally, I would say appoint courageous chairs, they are instrumental to form a crucial tandem with the CEO. They must be decisive and they must be able to take sometimes decisions that are, I would say, short pain for long gains, and they must be able to challenge the short term financial interest of the shareholder and ensure that the long term sustainable strategy is implemented.

Thierry:

This was a very interesting discussion. Thank you very much, Pascale.