Are Norwegian Boards On Board: An ESG Board Index on Norwegian Boards' Ability to Mitigate Sustainable Materiality Risks

Abstract

This study explores the relationship between Norwegian board of directors’ sustainability competencies, and the boards’ ability to mitigate sustainable materiality issues. By creating an ESG board index, we aim to provide an indication on how to ensure such alignment. We conceptualize board characteristics that constitute a qualified sustainable board and illustrate its effects on boards’ approach within different stages of materiality development. Our research is undertaken through the perspective of critical realism to structure our understanding of the causal relationship between board of directors’ sustainability competencies and the boards’ ability to mitigate sustainable materiality issues. We conduct a single case study that includes both primary and secondary data, with the purpose of providing qualitative data on a quantitative dataset, to establish characteristics of qualified sustainable boards. We examine boards’ ability to mitigate materiality risks within five stages of the “pathway to materiality”; status quo, catalyst, stakeholder pressure, company response, and regulatory response and innovation. Based on these findings, we argue that the index is applicable in a dynamic context and can be utilized by companies to become more forward-looking in terms of assembling a qualified sustainable board to tackle the materiality risks companies face. Finally, we evaluate the validity of the ESG board index on the basis of coherence, consistency and comprehensiveness. Based on these characteristics, we determine that our index is valid for application for both companies and investors. It can be applied in terms of making effective adjustments to improve relative performance and anticipate changes in valuation of investments. Our contribution to literature lies in our explanatory approach to the topic, where we establish the causal relationship between sustainability expertise on boards and the ability to mitigate materiality risks. As we found the role of boards in strategy formulation and implementation to be an understudied phenomenon, we have tried to contribute with insightful research to the topic.