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Leading the Energy Transition: The Board’s Vital Role in Sustainability and Strategy



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Effective governance for a sustainable future: How boards lead the energy transition through strategy and action.


As the global business community faces the challenges of the energy transition, the role of corporate boards in governance, strategy, and sustainability emerges as a critical determinant of success. At New York Energy Week, Sonita Lontoh, a recognized leader in climate, energy, and sustainability, delivers an essential perspective on this shift. Her session, "Energy Transition: The Critical Role of Boards in Governance, Strategy, and Sustainability," outlines how boards must adapt their governance frameworks to address the rising importance of sustainability in business strategy.

Lontoh emphasizes that boards now hold evolving responsibilities as stewards of long-term value creation. She offers a roadmap for how boards guide companies through climate change, regulatory pressures, and shifting stakeholder expectations. As businesses encounter increasing demands to lead on sustainability, Lontoh’s message is clear: Boards must take an active, informed, and integrated approach to governance to succeed in this transformation.

Climate Literacy as a Board Imperative

Lontoh stresses that every board member must be “climate literate.” While boards often include a dedicated climate or sustainability expert, this model is insufficient. “Relying on one individual as the climate translator for the board is not ideal,” Lontoh states. She urges companies to ensure all directors possess a fundamental understanding of the environmental risks and opportunities facing the business, allowing them to provide strategic oversight and challenge management effectively.

Lontoh draws a parallel between climate literacy and financial literacy, asserting that both are now essential for board members. “Given the pivotal role climate and sustainability play in a company’s long-term competitiveness, all board members must be climate literate,” she explains. This means understanding which sustainability issues are material to the business and how they affect the company’s ability to generate value.

Embedding Sustainability into Business Strategy

Lontoh insists that sustainability should not remain confined to corporate social responsibility (CSR) initiatives or compliance checklists. Instead, it should serve as a core element of the company’s strategic plan. “Sustainability is not just about doing the right thing; it is about managing material risks and seizing opportunities to create long-term value,” she explains.

Many companies treat sustainability as a stand-alone function, isolated within the chief sustainability officer's (CSO) domain, with little involvement from business leaders. Lontoh considers this approach flawed. Boards must ensure sustainability aligns with broader business objectives, influences financial performance, and informs competitive positioning.

To foster this alignment, Lontoh advises boards to question management on how sustainability efforts contribute to business outcomes. For instance, boards can ask, “How has this initiative reduced costs through efficiency?” or “How has it helped the company retain customers?” These questions shift sustainability from compliance to value creation, emphasizing the business benefits of such initiatives.

Governance Structures for Effective Oversight

Lontoh highlights how boards evolve their governance structures to address the complexity of sustainability oversight. Responsibility often resides with the nomination and governance committee, but many companies now create specialized sustainability committees. However, she warns against isolating these committees. “Sustainability committees must collaborate closely with audit and compensation committees to ensure holistic governance,” Lontoh explains.

She also notes that integrating sustainability metrics into executive compensation becomes increasingly common. Around 40% of S&P 500 companies now tie greenhouse gas (GHG) reduction and supply chain sustainability to performance plans. Boards must carefully evaluate whether this approach fits the company’s maturity in its climate journey and its ability to measure and track progress.

Balancing Stakeholder Expectations in the Energy Transition

The energy transition positions boards at the center of balancing competing stakeholder expectations. “Boards face a complex challenge,” Lontoh explains. “Some shareholders demand greater climate action, while others prioritize short- and mid-term financial targets.” Boards must balance these competing demands while embedding sustainability into the company’s strategy.

Lontoh points to younger employees as key drivers of corporate sustainability. A Deloitte study finds over 50% of millennials choose jobs at companies with strong sustainability programs. “Employees seek purpose-driven companies, and climate and sustainability are central to that purpose,” she states. Similarly, consumers increasingly factor sustainability into purchasing decisions, with some companies requiring suppliers to demonstrate strong sustainability credentials.

Avoiding the Pitfalls of Greenwashing

As sustainability pressures rise, Lontoh warns against “greenwashing”—the practice of making misleading or exaggerated claims about environmental efforts. Boards must ensure the accuracy and authenticity of their sustainability disclosures. “Don’t say something unless you’re truly committed to it,” Lontoh advises. Sustainability must embed within the business strategy, not serve as a marketing tool.

With new regulations such as the SEC’s climate disclosure rules, boards must align sustainability metrics with financial filings to avoid reputational and regulatory risks. Inconsistent or inaccurate disclosures can expose the company to significant penalties.

The Future of Board Governance in the Energy Transition

Looking ahead, Lontoh outlines the ongoing governance role boards play in the energy transition. She stresses that sustainability should be a standing item on every board agenda, integrated across committees, and discussed in every meeting. “Sustainability must form part of enterprise risk management, discussed in the audit committee, and aligned with overall strategy,” she says.

As companies transition to a low-carbon economy, boards must guide them through the complexities of sustainability. This requires a deep understanding of climate risks and a vision for how sustainability can create long-term value for all stakeholders.

Lontoh’s session at New York Energy Week reinforces a vital message for corporate boards: sustainability is no longer optional. Boards must lead the way in integrating sustainability into governance and strategy. Those that embrace this role will position their companies to create lasting value in a rapidly changing world.

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