As traditional oversight models prove inadequate for navigating today's complex, interconnected business risks and stakeholder expectations, corporate boards must adopt proactive and integrated approaches to governance and oversight for long-term resilience and success
Key insights:
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Traditional board oversight models are outdated — Amid multiple crises threats, corporate boards that still rely on legacy governance approaches risk falling behind as today’s interconnected crises demand proactive and adaptive oversight.
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Questioning assumptions about growth — Boards must continually challenge their assumptions about growth and risk utilizing four key strategies, including red team exercises, translating trends into strategic trade-offs, embedding sustainability anticipation, and linking culture with capital.
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Sustainability is a central filter for all board decisions — Boards that proactively integrate sustainability into their culture, risk management, and strategic planning are better positioned to thrive amid regulatory pressures, climate risks, and stakeholder expectations in a volatile global environment.
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Last year, corporate boards demonstrated greater readiness to address sustainability issues with significant financial implications, especially compared to their preparedness in 2018, according to the NYU Stern Center for Sustainable Business. For example, Environment, Social & Governance (ESG) board committees among Fortune 100 companies increased to 89 in 2024, compared to 22 in 2018.
At the same time, it is hard to know if this progress is adequate. As climate shocks become more severe, AI transforms industries, and stakeholder expectations evolve, corporate boards of directors are encountering a dynamic business environment that contains multilayered risks.
Boards operating in the traditional oversight models may soon find themselves struggling as the governance tactics of the past prove inadequate in the face of these newer changes. Furthermore, the future operating environment for companies is becoming increasingly complex, with a heightened risk of polycrises, in which multiple, interconnected crises converge to create unprecedented challenges.
Moreover, boards of directors as fiduciary stewards of companies’ strategies are now expected, by regulators, investors, and stakeholders, to demonstrate fluency in climate and sustainability issues. In fact, more than 50 jurisdictions have introduced requirements or expectations for directors to possess climate-related competence. This profound shift requires boards to take a much more aggressive, forward-looking orientation in which every operating assumption is questioned.
In this context, sustainability is no longer a peripheral concern, but rather a central filter through which every decision must pass, as companies must navigate the intricate relationships between environmental, social, and economic factors to ensure long-term resilience and success. This reality means that boards must take proactive and integrated approaches to effective governance and oversight. Indeed, those that prioritize sustainability, risk management, and strategic adaptability are more likely to thrive in a world characterized by uncertainty, interdependence, and accelerating change.
Embracing re-evaluation strategies
To meet these new expectations in an ever-changing business landscape fraught with multi-faceted risks, boards must also question their assumptions about growth and the lens through which they are examining systemic risks. A board also needs to understand where it is prioritizing short-term wins at the expense of long-term viability.
These four key strategies can help directors prompt a critical re-evaluation of their growth assumptions and framework they use for assessing systemic risks — they can also help directors determine whether the board is prioritizing short-term gains over long-term sustainability:
1. Execute “red team” exercises
Boards often find themselves surrounded by confirmation bias because they rely on trusted advisors and management teams who often share familiar viewpoints. This environment can stifle innovation and obscure systemic risks. A red team exercise can help break this cycle by inviting a diverse group of external experts and internal challengers to pressure-test assumptions about growth, systemic risks, supply resilience, reputation, and the company’s license to operate. Such exercises encourage directors to confront uncomfortable truths and explore alternative scenarios.
Too many organizations still operate as if ESG and value-creation are in conflict when, in fact, they are not. Running red team exercises in the board room can better align their strategies with sustainable goals to better spur innovation while maintaining operational resilience as priorities.
2. Translate trends into strategic trade-offs
Boards must be adept at discerning emerging trends to better inform the difficult strategic decisions about what to pursue and what to forego. Asking tough questions that frame trends as choices is an effective mechanism to analyze trade-offs. For example, “Do we invest in short-term returns with high-carbon lock-in, or reallocate capital toward regenerative business models that preserve long-term viability?” is a common trade-off question that many companies across industries are asking. By engaging in debates about real dilemmas rather than passive updates, directors can make informed decisions that balance immediate gains with future sustainability.
3. Build “sustainability anticipation” into board culture
To lead effectively in an uncertain future, boards must build sustainability foresight into their culture. An effective means of doing so is embedding sustainability anticipation into every board committee’s mandate. Tools such as dynamic scenario planning, transition-readiness metrics, and real-time materiality assessments that address emerging risks can help boards to anticipate and adapt to future challenges.
4. Link culture and capital
Most companies view sustainability as just a function rather than a filter for every business decision. This is why linking culture and capital at the board level is an essential step in making boards genuine hubs of foresight. Indeed, pulse surveys, stakeholder feedback, and behavioral data are necessary sources boards can use to make sure that sustainability is a foundational principle across all business decisions and used as a lens for value creation.
Looking ahead
The time for passive governance is over. By adopting these strategies, boards can navigate the complexities of today’s business environment for long-term viability for tomorrow. As the risks of interconnected crises — polycrises — intensify, making sustainability a fundamental criterion for every business choice is crucial for companies and can provide a profitable operating path in the years to come.
You can find out more about how companies are addressing the challenge of sustainability here
