As companies address evolving ESG demands, directors who sit on the board play a critical role in overseeing strategies and managing risks.
They share that they, too, encounter a unique set of challenges in fulfilling their governance duties on sustainability-related issues. The most persistent barrier, said Dr Jayanthi Naidu Desan, is the gap between commitments and operational execution.
“Many boards approve ambitious ESG frameworks, policies or targets but struggle to translate them into clear accountability, incentives and decision-making authority within the organisation,” the independent non-executive director of Berjaya Assets and fellow of Institute of Corporate Directors Malaysia (ICDM) said.
She observed that ESG often sits in a separate committee or sustainability function, while core business decisions like capital allocation, risk appetite, executive remuneration and procurement continue to be made in silos.
“When ESG is not embedded into these levers, it remains aspirational rather than executable,” she said.
Ho Yuet Mee, chairman of CIMB’s board group sustainability committee and ICDM member, cited an unawareness of ESG issues and the inability to respond to the manifold issues appropriately as the common challenges faced by boards.
“The management is too focused on short-term results, and there is a lack of adequate management support to execute ESG commitments,” she added.
Datin Seri Sunita Mei-Lin Rajakumar, founder and non-independent director of Climate Governance Malaysia and ICDM fellow, observed a bifurcation between directors who understand that value-driven businesses are sustainable and have worked hard to embed such values into the DNA of their organisations, and those who were following “trends” without fully understanding the business impact.
“Boardrooms are further differentiated by those with forward-looking, strong critical thinking and strategic foresight skills, versus those who are adept at navigating the board pack, mainly backward-looking ones,” she said.
Sustainability as cost centres
Jayanthi observed that board discussions on sustainability are influenced primarily by regulatory expectations, reputational considerations and risk management, rather than a strong value-creation or incentive-driven logic.
What sharpens board attention is when sustainability issues are clearly framed as financially material risks or opportunities, she added.
“For example, transition risk affecting asset value, supply chain fragility affecting business continuity as well as regulatory non-compliance affecting talent and licence-to-operate concerns.”
Sustainability initiatives are frequently viewed as cost centres or compliance obligations, making them vulnerable when near-term financial performance is under strain, Jayanthi said.
Even well-intentioned boards, she added, can default to prioritising near-term financial performance when incentives, analyst scrutiny or macroeconomic uncertainty intensify. Sustainability investments, especially those with longer payback periods, can then be perceived as discretionary rather than strategic, she added.
“The boards that navigate this tension best are those that deliberately institutionalise long-term thinking in linking sustainability to long-term metrics, stress-testing strategy against future scenarios and anchoring discussions to risk visibility and capital market value creation to create resilience.”
Given that remuneration linkage to sustainability remains very limited across much of Asia, Jayanthi added, boards generally rely on softer mechanisms to keep sustainability on the agenda such as periodic reporting, policy commitments or inclusion within risk discussions.
“While these approaches help signal intent, they are often insufficient to counterbalance short-term pressures.
“As a result, sustainability tends to progress incrementally rather than transformationally, shaped by what is required or expected in the near term rather than by a fully embedded long-term value creation framework,” she said.
Future expectation
Despite the constraints, meaningful shifts are underway.
Sunita has noted a far better and more nuanced understanding of the intrinsic value of nature and biodiversity in topics such as food security and reinsurance premiums, as no business can be resilient unless it operates within a resilient ecosystem.
There have also been paradigm shifts in multiple business models, one of which is the massive drop in costs for mitigation solutions.
“Thought leaders are emboldened and inspired by this massive once-in-multi-generation opportunity to reset the industrial base and to provide valuable solutions for a smooth and just transition,” she said.
In time, Ho opined, all board members will be expected to be sustainability competent and mindful of long-term value creation, “just as how they are now all conscious of integrity and internal controls.”
