Elfrieke van Galen in Management Scope – ‘Sustainability is all about integrated acting’

This interview is published in Management Scope 23-05-2023 | Interviewer: Caroline Zegers | Author Jan Bletz | Image: Rogier Veldman

At all the various companies that Elfrieke van Galen serves as a non-executive, she treats sustainability as a leading theme that deserves an integrated approach. “Too often, sustainability is broken down into subtopics, such as climate change, human rights, biodiversity. While all those themes influence each other and influence the entire business operation.’

The Climate Governance Initiative of the World Economic Forum (WEF) launched Chapter Zero in the Netherlands at the end of March, following fifty other countries. Chapter Zero’s mission is to support supervisory directors of the larger companies in the Netherlands to substantially accelerate the sustainability of these companies. Board member Caroline Zegers is head of executive compensation at NN Group and has various other roles with remuneration issues and ESG as important points of attention. She talks to Elfrieke van Galen, commissioner at Schiphol, GVB and Triodos Funds, among others, and partner at TheRockGroup, who has a warm heart for sustainability. An interview about the role that supervisory directors can play in the ESG field and how the supervisory community can help Chapter Zero with this.

 

What motivates you to be so intensively involved with the theme of sustainability, why are you so strongly involved in this subject?

‘I think the theme of sustainability brings two things together for me. As a teenager I was very intensively involved with nature, including as a member of a nature club. Then I started working at KLM – first as a summer stewardess and later in management – and there I became more aware of inequalities in the world. After a number of years, those subjects converged. It resulted in the question: how can I contribute to the continued existence of companies, while operating within the carrying capacity of the planet?’

 

Making profit in a sustainable way: that theme often evokes polarization in conversations. As if it were a choice: either sustainability or profit. How do you experience that?

‘I think it is a great pity that this polarization is there. Also some people in business think it’s either-or. But for me it’s both and and, because profit is necessary for the continuity of a company. Only we now threaten to roll out all the doomsday scenarios of the 1972 Club of Rome. It really has to be different. Not necessarily less, but in such a way that it becomes possible to make a profit without exceeding the carrying capacity of the planet. This means that dilemma management is required, in which all kinds of aspects are taken into account. That makes it more complicated than if you choose one or the other. All the more so because sustainability is not only about climate change and other ecological issues, but also about social issues – the question of whether you act fairly not only in the chain, but also in the Netherlands.’

 

Activists at shareholders’ meetings, Milieudefensie, Extinction Rebellion: all parties that want attention for sustainability. That is understandable, but the way they manifest themselves quickly leads to further polarization. A good conversation about the subject then becomes increasingly difficult.

‘It mainly feels to me as if the business community is being forced to take extra measures, partly because of these kinds of external forces. There are many belief systems that encourage further polarization, as people cannot agree on the facts. It gets very complex that way; sometimes chaos threatens. It seems to me that it would be better for you as a company to take matters into your own hands, and that is what happens. As a driver, you must determine your own course and take steps. You do this in the knowledge that it is not simple and that there is not just one solution for all issues.’

 

How do you see your role as a supervisory director? Do you guide fellow supervisory directors and directors to make the conversation move towards that one-and-one?

‘I strive to address sustainability in every topic that comes up, be it strategy, risk management or any other topic. Too often sustainability is an agenda item that is discussed once a year as a separate topic – often even at the bottom of the agenda so that there are only five minutes left to devote attention to it. And then it is also sometimes split into sub-topics, such as climate change, human rights, biodiversity. While they all influence each other and affect the entire business.

I am first and foremost an “ordinary” supervisory board member with knowledge of sustainability and I also adjust my sustainability approach to the maturity of the company in the field of sustainability and the current situation. I don’t put sustainability on the agenda in times of crisis.’

 

Is a sustainability committee within the supervisory board useful? Or will it then become a separate theme, while it must be integrated?

‘A separate committee with sustainability as a specialization can be useful. But then in preparation for issues that are discussed in plenary during the meeting of the Supervisory Board. Just like an audit committee does, with specialists who can update the supervisory directors and provide them with knowledge. Because that’s what it’s all about: do the supervisory directors know enough about the subject? That is not always the case, as sustainability is quite a complex subject. Because what sustainability themes are we talking about? What is the sustainability performance? What consequences do we attach to this? And above all: how can the company approach sustainability in an integrated way?

These days I no longer come across supervisory directors who are not familiar with the theme of sustainability at all or who do not see that they have to do something with it. Their social antenna is usually sharp enough for that. But such a social antenna is not enough. A supervisory director must also have knowledge of the subject and be able to assess its relevance to the company. That is by no means always the case.’

 

You don’t see much of the integrated approach that you advocate. Profit is often a priority, sustainability less so. And even if that is not the case, sustainability is seen as a separate subject rather than an integral part of business operations. How can that improve?

‘You have integrated thinking, acting and reporting. At the moment, there is a great deal of emphasis in the business community on integrated reporting, partly due to the stricter laws and regulations in this area. There is also an abundance of training related to integrated reporting and the alignment of financial and non-financial data. While reporting should be the final piece of the whole process. The “how” should be central to integrated thinking and acting. Ask questions about that how. For example: how can we, as a supervisory board, include sustainability when we talk about the subjects that always come up during our meetings? Whether that be the strategy, the annual accounts, risk management, the budget or the culture of the company.

Subsequently, the board can proceed to integrated acting, in which it will encounter various dilemmas. The board will have to make choices between activities that produce financial and non-financial results, between the short and the long term. This should be discussed with the supervisory directors from time to time to see what considerations the board has made.’

 

Perhaps you can give an example of how this could work out in practice?

‘I am also a consultant and in that role I am working with a housing corporation that has chosen three sustainability themes: climate change, climate mitigation and circular construction. At the same time, this corporation wants to build as many affordable homes as possible. How do you weigh all these things against each other when you decide to invest in renovation or new construction? You actually want to score well on all aspects, both on the sustainability themes and on the standard business themes. But sometimes those elements reinforce each other and sometimes they don’t. So you have to weigh those things up against each other.

In short: step one for every supervisory director is a clear understanding of which green and social themes are relevant to the company. This is then translated into various business activities and finally it is all brought together again. Very few companies approach it in this way, and very few supervisory directors view these kinds of issues in that way.’

 

Ideally, a supervisory director would time and again ask the board about the considerations that have been made in the decisions taken. If the answer is too often: ‘We have to make a profit at the end of the year’, the commissioner should point out to the board that according to the strategy, other matters are also on the agenda. And ask if they have been taken into account.

‘Yes, and that’s fine too. Especially when it comes to things that can easily be expressed in monetary terms. For example, CO2 currently has a monetary value. So when a director reports how much profit has been made, you as a supervisory director can also check how much CO2 has been emitted and what its value is. Not to deduct that amount from profits, but simply to make executives aware that they have also destroyed value.

A good question is also: what if we do nothing? It is often thought that you have to have a very high ambition when it comes to sustainability. While that entirely depends on where the company is at that moment. Sustainability equals ambition: of course you don’t have to. You can also have a low ambition, or a low ambition on one theme and a high ambition on the other theme. It will come as no surprise to me that it is more important that sustainability is integrated than that a company sets extremely high ambitions from scratch that it probably won’t actually pursue anyway, but which look very nice.’

On the other hand, I certainly appreciate companies with moonshot targets because this can unleash enormous energy in people. Even if those targets are set without people knowing how to achieve them. That means she has to ask herself questions. What are the steps to get where they want to get? What are the costs? Where will that take place? Who’s going to be doing that? What does it mean for the organization? What does it mean for the business model? Those kinds of questions.”

 

Does this subject also require new skills from supervisory directors?

‘In any case, it requires new knowledge. In addition, new skills in the field of system thinking and dilemma management may or may not be required. A certain curiosity is also important, plus a broad perspective and a willingness to think about what is happening in the rest of the world.’

 

Are these skills more likely to be found in female than male supervisory directors?

‘I don’t see it that way. Perhaps this was once the case, when sustainability was often dismissed as a floaty theme. Perhaps it was then also seen more as a theme for that one lady. But nowadays everyone is aware that it is hard business reality: it affects the survival of companies, it will influence your business model and all your customers and other stakeholders. I don’t know of a company in the Netherlands that is not involved in sustainability. So if it was already seen as floaty, then certainly not anymore.’

 

You noted that there is an abundance of training in the field of integrated reporting, while little attention is paid to the ‘how-questions’ in integrated thinking and acting. Do you, like me, see an important role for Chapter Zero here?

‘Certainly. I think there is a lot to be gained from activities for and by supervisory directors in this area. For example, sharing best practices to determine when it is wise to have a supervisory director with a sustainability portfolio, what knowledge should supervisory directors have, whether or not to set up a separate committee, how best to shape the relationship with the board – and more such questions.

Many of those questions are not that difficult at all, but the knowledge about them should be shared more often. Take a topic like scope 3, which is about the CO2 emissions throughout the life cycle of all products that the company buys, manufactures and sells. Many supervisory directors do not know how to calculate those emissions and find scope 3 complicated. While there are ready-made calculation methods that can be applied like this. In fact, the company supervised by the supervisory director who finds it so complicated has long and broadly applied it. Or any other company. Commissioners no longer have to reinvent the wheel themselves. Chapter Zero can provide the community in which supervisory directors can inform each other that those tools exist and help each other further.’