Boards Meeting Challenges from Sustainability to Geopolitical

Summary

Boards of directors are confronting an ever-expanding list of critical, complex topics—many of which reflect powerful external trends and disruptions. For the past few years, that list has been driven by an increased urgency to address climate and sustainability issues, and that imperative continues. But other issues—such as the rising importance of generative AI (GenAI) and intensifying trade and geopolitical disruptions—have also become a central part of the board agenda. These interconnected dynamics are forcing directors to navigate an increasingly unpredictable environment filled with conflicting and often politically charged demands.

The INSEAD Corporate Governance Centre, in collaboration with Heidrick & Struggles and Boston Consulting Group (BCG) has launched the third edition of the Board ESG Pulse Check based on survey and roundtable discussions to explore how boards are responding to complex trends and disruptions they are currently facing. The findings reveal that boards have made meaningful advances to address sustainability topics, but are less confident when it comes to their understanding of other issues such as the rising importance of generative AI, intensifying trade and geopolitical disruptions.

The report reveals that 77% of the global board members surveyed believe their company has a responsibility to address societal concerns, although more than half (54%) believe that business objectives should remain the primary focus. In contrast to this enthusiasm around sustainability, only 36% of directors feel prepared to leverage the disruptive potential of AI, while just 37% agree that their companies have sufficient strategies in place to manage geopolitical risks.

These findings highlight an urgent need for greater balance between traditional governance with forward-looking strategies and increased investment in board competency.

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Key findings

Confidence in confronting disruptions

A healthy majority say they strongly or somewhat agree that their company has a clear understanding of the effects of sustainability and trade and geopolitics. But when it comes to GenAI—which has emerged relatively recently as a critical factor—the directors have less confidence in their company’s understanding.

Anticipating major trends to scan for new threats and opportunities

Understanding the changes that are occurring is one thing. It is quite another to “look around corners” and anticipate how major trends may evolve and then set a path to translate those shifts into competitive advantage. Roughly half of directors are not confident that their company has the muscle to scan the horizon for new threats or opportunities connected to sustainability, GenAI, and trade and geopolitics.

Leveraging disruptions for competitive strategies

Similarly, the survey reflects that companies are still struggling to develop strategies for translating disruption in any of those three areas into competitive advantage. The challenge is most stark for GenAI.

Actions boards are taking to adapt to disruptions

When asked what boards are doing to adapt to disruptions around sustainability, GenAI, and trade and geopolitics, the top three actions directors cite include adapting the competency matrix, along with ongoing education and engaging with independent experts.

Top governance practices change

At the same time, more than 60% of directors report that their board is enhancing risk management, making it the top governance change. And a full 44% of respondents report that their board is increasingly conducting scenario planning—an encouraging sign.

Ensuring a resilient and adaptive board

We encourage boards to take four primary steps to ensure that their governance approach can meet today’s challenges.

Enhance horizon scanning and risk management. Boards that embrace scenario planning and enhanced risk management processes, including through regular input from external advisors, can help their company better anticipate and respond to future risks and opportunities.
Take a long-term perspective grounded in purpose. Boards can also help their company thrive amid uncertainty by regularly stress testing the capital allocation process. Such an assessment can determine whether investment decisions are aligned with the long-term strategy and purpose, yet flexible enough to allow for swift changes.
Lead across the divides. A complicating factor is that the growing polarization outside the boardroom can occasionally surface within it. By promoting meaningful engagement with many types of stakeholders (not only shareholders and customers but also activists, competitors, and government officials), boards can bridge the divides that separate various groups.
Drive impact beyond business boundaries. Boards should encourage management to engage in shaping industry standards, regulatory frameworks, and societal expectations, ensuring their company is not merely responding to change but driving it in an ethical, sustainable, and responsible way.

The list of fast-changing and complex issues on the board agenda is extensive—and seems to grow longer by the day. The good news is that we see clear signs that boards are rising to the challenges. Forward-looking boards are reshaping the way they govern to become more outward-looking and adaptive. That will be the key to success in an era of continued disruption.

This research study is jointly developed by: