Sustainable corporate governance

Author: Steffen Weigelt, August 28, 2024

1 Introduction

Something that has become much more important in recent years is Sustainable Corporate Governance (SCG). There are more and more challenges for companies to take on social and ecological responsibility in addition to economic success. It is important for them to find the right balance between profitability and sustainability and to utilise the decisive mechanisms and instruments available to them. A company that aims to get Sustainable Corporate Governance needs to master these tools and is the way for them to get a comprehensive balance between economic, social and ecological aspects. 

There are some key problems for companies when it comes to sustainability. One of them is that short-term profit maximisation often conflicts with long-term sustainability. Companies therefore often ask themselves how they can create incentives to pursue long-term goals without neglecting the interests of shareholders. In addition, the role of certain actors such as supervisory boards and the way sustainability reports and transparency can promote communication with stakeholders are crucial.

But why do companies now have to think about these issues and why is it relevant for them? Milton Friedman once said that the social responsibility of companies was to increase their profits and thus maximise value for shareholders. And now companies are being asked to take on a different social responsibility. This is being driven by key figures in particular such as Theresa May in her speech in 2019 or Greta Thunberg during her speeches in the years of the Fridays for Future movement, who argue that these challenges need to be addressed through reasonable corporate governance systems¹. In addition, more and more management scientists are recognising that decisions related to environmental sustainability are much more frequently dictated by corporate governance agreements¹. Thus, the way in which companies organise their decision-making also plays a major role in overcoming these challenges. As a result, they often must make significant investments with long-term strategic implications and require considerable coordination at multiple levels between different corporate actors¹.

This sense of SCG has evolved through wide-ranging issues such as business ethics across entire value chains, human rights, corruption, bribery and climate change, as these are the big issues in our society today². These are increasingly merging with corporate governance and therefore appear to be more and more important to company boards.

The World Climate Conference in Davos in 2006 provided an interesting insight, where the rising population and future challenges due to the climate crisis were already among the main topics. At that time, a major investment bank gave a presentation and presented a brief insight into how it intends to master upcoming challenges on the markets as well as through external influences². As an example, this bank mentioned that it expects a global pandemic in the coming years. They wanted to use the resulting economic consequences for many companies to buy up and take over weakening competitors and for the preparation of these takeovers they are going to use SCG. The coronavirus pandemic then occurred in 2019, which led to the end of business operations for many companies. In these cases, sensible sustainable corporate governance could also have worked well as a defence mechanism against hostile takeovers or the termination of business activities.

In this article, the path from corporate governance to the sustainable variant will be examined and further illuminated by citing various definitions. The methodology used in the search for information is explained and described in more detail. The literature review on which this work is based is then explained and theoretical concepts and their results, which were used in these sources, are presented. This review is also intended to provide an insight into the development of the literature and offer a brief historical background to the topic of sustainable corporate governance. Subsequently, the current state of research is set out and suggestions for possible future research are made based on the literature mentioned. Finally, some suggestions for the practical implementation of sustainable corporate governance are explained, on the one hand, which mechanisms and processes exist and on the other hand, which drivers and barriers exist for the implementation of SCG. In addition, Best-Practice-Examples are given and recommendations for implementation are made.

This work is intended as a wiki article to give companies an insight into the developing topic of sustainable corporate governance, to provide a structured overview of the topic, to transfer knowledge from science into practice and to accelerate the transition to sustainability.

2 Definition

To introduce the topic, a definition of SCG is important. A definition provided by Aguilera et al. in their 2021 review is called Corporate Governance of Environmental Sustainability. This refers to behaviours and strategies that reflect the distribution of rights and obligations in relation to environmental sustainability issues within a company¹. Possible behaviours that could be included are, for example, shareholder tactics to influence the disclosure of environmental information by the company or the promotion of diversity on the board to avoid groupthink in environmental investments and encourage an active mindset¹. Aligning executive compensation with the company’s environmental performance and giving employees the rights to voice their interest in environmental decisions about their daily work in the organisation are also interesting strategies that lead to the promotion of SCG¹. The usage of SCG improves the so called Corporate Environmental Sustainability (CES), which is an indicator for the level of sustainability inside a company³. However, as many stakeholders have different interests regarding sustainability and the impact on the environment, the main task of sustainable corporate governance is to reconcile these interests with the aspect of sustainability as defined¹. A key challenge for SCG is to minimise conflict within the design of Corporate Governance-practices for environmental sustainability¹. This concept can be integrated through various mechanisms like the Board of Directors (BOD) and requires the motivation of many stakeholders to make it successful. This definition of SCG is formed from the two points of corporate governance (CG) and sustainability, which is why the two parts are considered individually below. The topic of corporate governance is compared with several definitions and a small insight into the topic of sustainability is considered from a corporate perspective. The CG mechanisms are then briefly explained and the most important CG mechanism is presented in detail.

2.1       Corporate Governance:

There are a lot of slightly different definitions for CG in the literature and in the following a few of them will be mentioned and explained. In the first definition, corporate governance is the distribution of rights and obligations within the company⁴. It focuses primarily on the allocation of power and resources to the various corporate actors and the control of the supposed tensions between these actors. This definition therefore places particular emphasis on the various actors within the company⁴.

A further and very detailed definition is provided by Naciti et al. in their article Corporate Governance and Sustainability in 2022, according to which corporate governance is a set of rules and organisational structures that form the basis for proper business operations⁵. It should be understood as a balance for the different interests of stakeholders. CG encompasses several areas of the company, whereby it can refer both to a series of activities as well as rules aimed at ensuring that companies comply with certain codes and to the processes by which a company can be managed and controlled⁵. Thus, CG also shows the ways and means by which the objectives of a company can be achieved by using these. This view of corporate governance has evolved from the original assumption that the concept serves to protect the investments of shareholders from the opportunism of managers⁵. Today, Corporate Governance refers to a broader form of monitoring corporate activities, which now also includes environmental and social impacts. This definition focuses in this case on the control and monitoring of the company through certain rules and activities⁵.

The third definition is the simplest. In their article from 2023, Karn et al. define CG as the system by which companies are controlled and managed³.

All three definitions mentioned deal with the control, management and monitoring of the company and its activities. An important aspect here are the various interests of the stakeholders, which are to be brought to a compromise through this system so that no stakeholder feels disadvantaged. It is therefore a decisive instrument for developing the strategy within the company.

2.2       Sustainability:

A basic definition for research on the topic of sustainability is provided by the World Commission on Environment and Development in 1987. This date is of great importance and will be explained in more detail in the course of this work. In this definition, sustainability is described as a concept of economic development that addresses the needs of today’s society without compromising the ability of future generations to meet their future needs. There are many developments of this definition which define areas such as sustainable development itself or sustainable ecosystems. These are often important parts and strategies within companies, which also affect them and their business development. In the literature, the definitions of environmental sustainability are often decisive, as this is where the links between CG and sustainability can be established.

Environmental sustainability considering companies is often defined as a set of behaviours and strategies designed to mitigate the activities of companies and their impact on the natural environment⁶. This means that companies introduce and develop products, processes and strategies that reduce energy consumption and waste. In addition, the use of ecologically sustainable resources and the use of environmental management systems(EMS) are recommended⁶. It is also important for companies to define sustainability as a concept that encompasses the social, economic and environmental dimensions and to understand that companies influence these three dimensions².

2.3       Corporate Governance Mechanisms:

Corporate governance mechanisms can be described as the sum of activities a company can use to control the behaviour of the corporation and individual stakeholders. This definition is closely related to the definition of corporate governance and can be thought of as cogwheels that need to be adjusted so that the company’s objectives can be achieved. They are therefore also crucial for driving sustainability forward. Accordingly, there are two main reasons why CG mechanisms are essential for sustainability performance. Firstly, significant investments and long-term strategies are required for sustainable performance, which have a significant impact on the company’s capital structure and profitability⁵. Secondly, the natural environment requires coordination at multiple levels. It is not only about the organisational level, but also about adapting the entire supply chain and involving other stakeholders⁵. Addressing these key reasons therefore requires strategic management related to sustainability. The benefit resulting from the application of such management is called sustainable profit⁵. It is characterised by the creation of direct economic value, which is why the practice of improving environmental and social impact is becoming more widespread⁵. Many researchers use this as a basis to investigate the relationship between corporate strategies and the sustainable performance of companies and have come up with some interesting findings. On the one hand, it was found that a company’s climate strategy is related to the company’s management approach to stakeholders⁵. On the other hand, further research showed that companies that implement more innovative climate change strategies have the opportunity to explore new business opportunities and improve their competitive advantage without negatively impacting their productivity⁷. What makes a climate strategy particularly attractive are the positive returns that can be generated. These include economic performance, organisational efficiency, competitiveness and improved reputation⁵. These positive returns enable the company to distinguish itself through image improvement, product quality or brand reliability. The Board of Directors plays the biggest role as a mechanism for SCG as it has the most influence on the company and the processes within it⁸. In addition, the board, other stakeholders such as CEOs, employees, owners and others are crucial in shaping SCG and are seen as mechanisms for SCG^1,3. There are certain ways in which each of these actors can be influenced to help shape and increase sustainability within the organisation. In the course of this article, the actors and their possible influence as a mechanism on SCG will be explained more clearly and recommendations for action regarding their treatment will be made.

3 Literature Review

As a literature review forms the basis for this paper, this section analyses and evaluates the literature researched and explains important concepts and their results. It begins by looking at the historical development of the literature on sustainable corporate governance in order to understand how the literature has evolved over the decades (4.1). The literature is then analysed in terms of what it attempts to predict or has already predicted. Subsequently, theoretical concepts mentioned in the literature are explained and their results presented (4.2). Particular attention is paid to how these concepts promote SCG within companies. Following this, some of the company’s stakeholders are presented and their influence on SCG within the company is analysed (4.3). Finally, the literature is analysed for weaknesses and incentives for future research that could lead to a development of SCG in the future (4.4). 

3.1       Historical background

John Elkington’s journal article from 2006 provides a good introduction to the historical background of SCG². In this article, he explains the historical development of the reasons why the responsibilities of companies and legislators need to change. 

He begins by categorising the past into three waves of pressure that have had an impact on the development of SCG in each wave. In the first wave, called ‘Limits’, it began with the enactment of a series of environmental laws for the member states of the Organisation for Economic Co-Operation and Development (OECD)². This wave covered the period beginning in the early 1960s and ending in 1987, during which time companies went into compliance mode. Afterwards the first downward wave followed as this mode pushed back environmental legislation. During this period, there was a decisive turning point in which the world moved from a potentially sustainable to an unsustainable world. This world, characterised by resource constraints, thus evolved into one characterised by increasing disruption².

The second wave of pressure began with the publication of the article ‘Our Common World’, which was written by the World Commission on Environment and Development² like mentioned earlier. This article introduced the term ‘sustainable development’ into the mainstream of media and company environment and the ‘green’ pressure wave began. This lasted from 1987 to 1999 and had issues such as the depletion of the ozone layer and the destruction of the rainforest on the agenda. But compared to the first wave, in 1992 was also a downward trend in public concern and thus also among companies with regard to sustainability².

The third wave began in 1999 and was named ‘globalisation’². This wave drew attention to how companies could promote or hinder sustainable development through protests against the world’s public organisations. The UN World Summit on Sustainable Development subsequently placed this issue on its agenda, although not all countries participated². As a result, sustainability became an important part of the corporate governance literature from this point onwards.

The fourth wave was predicted for 2010 at the time of writing this article. This wave would focus on issues such as creativity, breakthrough innovation, entrepreneurial solutions to major challenges such as pandemics and climate change, and the rapid scaling and replication of successful solutions². As mentioned in the introduction, a presentation given by an investment bank headquartered in New York was very interesting. The Vice-Chairman explained that this bank would prepare itself for a pandemic that appeared to be definitive through sustainable corporate management in order to take over and buy up unprepared companies if this pandemic materialised². From a retrospective perspective, it can be said that this bank’s considerations were geared towards a real risk in the long term. If banks have an SCG-concept, they can position themselves more stably regarding such challenges.

Thus, the world is currently in the fourth wave of pressure and the fifth is already foreseeable, as the progression of artificial intelligence could also bring about a new development in the understanding of SCG. Today’s literature is increasingly trying to define the topic of sustainable corporate governance and presents measures and concepts that are crucial for the integration of SCG. In doing so, the literature often refers to various actors that can have a successful influence on SCG through decisive management^1,3. However, there are some companies that act contrary to the recommended measures and thus must face insolvency or the end of their business in the future. This becomes clear in the course of the work through the presentation of the concepts.

3.2       Theoretical concepts

The first theoretical concept according to which sustainable corporate governance is assessed in the literature was also mentioned by John Elkington² and is called the triple bottom line concept. It describes the unification of corporate governance with broader societal concerns². The aim of this concept is to demonstrate that social and economic dimensions need to be addressed in a more integrated way if real progress is to be made in the area of the environment². The aim is to implement this new way of thinking in the operational considerations of company management so that they can achieve multidimensional value creation. This can result in social, environmental and economic value being created or, in the negative case, destroyed². This integration of the mentioned dimensions is the responsibility of the company management. It must decide the ratio in which the three dimensions of the triple bottom line are integrated in order to operate sustainable capitalism and develop sustainable corporate management². According to the concept, it is not only about designing sustainable products and processes, but also about designing companies and their value chains, corporate ecosystems and the markets in which they operate². Companies can best guarantee these steps if they integrate the TBL- concept as an integral part of their governance and into the parameters of the markets in which they operate from the outset. This integration ensures sustainable management and could provide a major competitive advantage².

In Elkington’s second concept, he divides companies into different categories based on the results of the World Economic Forum and evaluates them according to their behaviour in facing future challenges and how SCG could help them. He developed four categories and uses animals and insects as examples to visualise his theory. In his concept he compares the behaviour of companies to that of certain animals. Afterwards he distinguishes between challenges that existed when the population broke the five billion people and challenges that arose when the population exceeded the ten-billion-mark². Both, the individual behaviour and the collective behaviour of companies are important. The categories into which Elkington classifies the companies are owls, penguins, lungfish and termites. In his article Elkington used a table like the one following in Figure 1 called ‘The Davos PLOT’².

To start with the challenges after the population broke the five-billion-mark, companies at the individual level are called lungfish. With this designation, the lungfish symbolises denial, growing desperation and retreat, all of which are associated with a high risk of failure². It describes companies that turn to protectionism in the face of challenges and reduce their activities to the bare minimum instead of focussing on the opportunities that arise². This behaviour is on the contrary to SCG and can quickly lead to the dissolution of such a company. In terms of the collective level, this behaviour is described as penguins. In the penguin scenario, companies increasingly huddle together to make themselves comfortable and survive under ever more extreme conditions². In the area of sustainability and corporate governance, these companies favour flexible and voluntary agreements, whereby they only enter into them if the other companies do the same². This entails the risk that radical developments such as climate change and others will happen too quickly for these companies, leaving them behind and putting them at a competitive disadvantage².

For the challenges above the population of 10 billion people, the owls can be seen as a symbolic animal at the individual level. This describes the companies that do not feel intimidated by resource restrictions but have already prepared themselves for challenges like this through sustainable corporate management and are thus developing strong competitive advantages through new innovations and ideas². The owl symbolises wisdom and, applied to companies, this means new market knowledge². On a collective level, however, the growing world population means that humanity can increasingly be compared to termites, because according to one forecast, cities with more than 20 million inhabitants could emerge in the next 100 years². Humanity will be confronted with economic, social and ecological challenges and therefore innovation and creative, sustainable construction are of paramount importance for companies². In humanity’s favour is that, like termites, it could find the right solutions. Meanwhile, it is also essential to pay more attention to global and corporate frameworks and processes that ensure compliance with basic rules of behaviour.

The aim of companies should be that they participate at the individual level through SCG as an owl in the development of a sustainable world and gain a competitive advantage by not being deterred by challenges. However, companies that hunker down and do not act sustainably will be overtaken in the future and lose their business².

Other theories for analysing sustainable corporate governance include agency, resource dependencies, upper echelons and institutional theories. These are the most widely used theories in research on sustainable corporate governance and are described more closely in the following.

Agency theory deals with the fact that there are many different corporate governance actors within a company who have different goals and interests with regard to sustainability within the company¹. These principal-agent-relationships influence decision-making, strategy formulation and strategy implementation. One example is risk-averse-owners who avoid sustainable improvements in production capacity, equipment and employee training. This would entail high investments with only long-term dividends^1,9. Research on this perspective usually looks at the mechanisms that reduce corporate opportunism and its negative impact on sustainability. Examples of these mechanisms include the control of supervisory boards and shareholders or the remuneration of executives⁹.

In its research, the resource dependency tradition looks at the utilisation of internal company resources by the board of directors. It examines the composition of the board and the personality of individual members for certain characteristics such as knowledge, legitimacy and connections to other organisations. The concept analyses how these characteristics contribute to or reduce sustainability in the use of resources^9,10.

The Upper-Echelons-Theory analyses how managers and board members approach strategic situations with their personal interpretation and what impact this interpretation has on sustainability¹. This interpretation is made up of the experiences, values and personality of the manager or board member. Certain characteristics of the person play a decisive role here, e.g. gender, education, length of service or professional background^1,11.

The institutional theory examines how different dimensions of a company’s social environment influence corporate governance actors¹. The decisive factor here is how they can be convinced that ecological sustainability is a means of maintaining the legitimacy of the company. Often this type of research is used in conjunction with other of the mentioned perspectives with the aim of examining the impact of formal rules, norms and knowledge on corporate environmental sustainability outcomes^1,12.

Another concept used in the literature to analyse SCG is the clustering-concept, in which key terms are identified by analysing important studies and literature on a topic. It also analyses how the treatment of these terms has evolved over time and how they are used together with other terms related to governance and sustainability⁵. Naciti et. al. used this type of clustering in their review through software to identify the main themes that were most frequently used in the literature on CG and sustainability and identified key terms⁵. They then analysed how these terms are linked within the literature. The result of this clustering was that keywords such as ‘society’, ‘innovation’ and ‘engagement’ have evolved from previous literature to e.g. ‘social responsibility’, ‘sustainability report’ and ‘board of directors’⁵. This evolution also reflects the shift in attention from more general and broad research questions to more specific aspects related to the mechanisms that influence the sustainable behaviour of companies⁵.

3.3       SCG-Actors

To shape SCG within the firm several actors are used as a mechanism by the Board of Directors which is the most important mechanism itself. These actors are frequently analysed in the literature and assessed according to various criteria. The following analysis focusses at the actors at an individual, team and company level and considers, among other things, the characteristics and motivation of the actors, their power and their experience. The information presented is based on the theoretical concepts already mentioned in chapter 4.2 and represents the results of the application of these concepts.

Board of Directors:

The Board of Directors (BOD) is the most important corporate governance mechanism that a company has and is therefore of the utmost importance for the implementation of sustainability. The composition of the Board of Directors is therefore an essential instrument for either promoting or blocking sustainability⁸. Decisive factors are the gender, age, nationality and professionalism of the members as well as the professional background and certain personal characteristics of the board members⁸. In the following, the Board of Directors is reviewed regarding some of these criteria and analysed as to how sustainability can be integrated at certain points.

The first point is the composition and function of the board. Many studies on board composition show that a board with multiple members has a positive impact on environmental sustainability in the company. In these cases, researchers argue that a larger board is more likely to improve the ability of companies to make relevant connections to their environment and secure important resources, including expertise, connections and legitimacy⁹. This leads to improved resources that have greater capacity for pro-environmental-behaviour and thus prevent environmental disputes⁹. Other studies have also found that environmental committees on boards have a positive impact on corporate environmental performance by providing access to specialised environmental knowledge and deeper and broader connections with relevant environmental groups¹⁰. In addition, there has recently been increasing attention to diversity on boards. Many authors have noted that board diversity can bring benefits to the organisation. These benefits include the ability to gain a competitive advantage by pursuing stronger marketing strategies or recruiting more staff, as well as improving the organisation’s performance⁵. Diversity itself is described as the composition of the Board of Directors in terms of demographic aspects such as gender, age, ethnicity, nationality, cultural background, religion and degree of independence^5,13. Diversity can have both short-term and long-term effects on various company dimensions. Sustainability practices have now been progressively applied to these aspects and researchers have concluded that the board corporate governance structure should enable mechanisms that improve not only the financial performance of the company but also its sustainable performance by supporting broader stakeholder participation⁸. In turn, through the concept of corporate sustainability, the role of the BOD goes beyond the idea of simply maximising shareholder welfare, as it also encompasses an ethical approach to stakeholders⁵.

Another criterion to consider is the personal characteristics of board members, which is why some studies analyse the impact of board members’ backgrounds on environmental sustainability. For example, members who are Chief Executive Officers (CEOs) of other companies while being on the board can strengthen environmental capabilities as they have a larger social network and a better understanding of the strategic opportunities associated with various environmental issues⁹. Having lawyers on the board also has a positive impact on a company’s environmental performance for similar reasons^9,14. In addition to these characteristics, a large body of research is now also focussing on the female role within the board in improving CES. Most studies show that female board members generally improve it, which is due to their characteristics as female members¹⁵. These characteristics include greater passion for environmental and social issues, different values, experiences and backgrounds, and better monitoring skills¹. In addition to these characteristics, the average age of members is also one of the essential characteristics in relation to sustainability. Research has found that companies with younger boards and older boards with an average director age of over 45 years or between 56 and 60 years have higher CES³. Younger directors were less reluctant to improve risky environmental strategic activities, while middle-aged directors balanced increased risk aversion with environmentally friendly moral judgements³.

As a third criterion, the motivation of the board to improve sustainability plays a major part. Here, psychological characteristics of the board play a crucial role as they influence perceptions regarding regulatory forces, stakeholder demands for environmental protection and environmental issues³. Some studies have looked at the environmental committees within the BOD and found that they are motivated to monitor CES, that it is an important legitimising signal for stakeholders^3,16. Additional motivation could also be provided by the introduction of remuneration contracts regarding sustainable target achievement. Environmental remuneration contracts would motivate directors to improve CES by linking directors’ remuneration to CES targets³. However, a high salary dispersion within the members of the BOD would play against this motivation, as they tend to focus on short-term performance¹⁷.

In addition to these criteria, the experience of the BOD and its individual members is analysed in the literature. It is emphasised that the composition of the BOD is a valuable source of knowledge that improves monitoring and advice. Firstly, Directors with longer periods of employment are important because their experience and knowledge give them broader access to resources⁹. Secondly, the size of the board itself represented a certain wisdom as larger boards accumulate a larger pool of knowledge to improve CES³. This already fits with the argument on board size from the aspect of BOD composition. Thirdly, the inclusion of stakeholders’ environmental requirements in board decision-making acted as a source of knowledge as it enabled boards to acquire new knowledge about CES³.

In addition to these three aspects, research on human and social capital within the organisation also plays a role according to some studies. Human capital includes the knowledge and experience of BOD members, while social capital describes the affiliation and network relationships that can influence CES⁹. In the area of human capital, members’ existing knowledge of CES has a positive impact on the company’s CES⁹. In addition, It is assumed that the level of education and the place of education have an influence on their environmental knowledge. Researchers found a positive significant effect for directors’ education acquired in Western Europe, but no significant effect for education level³. In the area of social capital, the affiliation of the directors and their network relationships improved the CES, as the directors gained knowledge and experience through their networks in order to give better advice³. Multiple mandates, i.e. members who sit on more than one BOD, play a major role here, as already mentioned in the aspect of characteristics. Furthermore, environmental committees, which, in addition to their motivation, also serve as advisory bodies for the improvement of the CES in cooperation with the area of research and development⁹.

After analysing these aspects, it becomes clear that there are already many small adjustments that can be made in the BOD. Diversity, composition and experience of the individual members play a decisive role in improving CES and additional motivation can be created through certain incentives. As the BOD is the most important CG mechanism, companies in this area should first focus on the perception of CES and possible corporate strategies. Furthermore, they should set up the BOD with positive perceptions in the direction of CES. However, as the BOD is not the only actor that has an influence on CES in the company but it has the biggest control over the other actors which will be mentioned. 

Chief Executive Officers: 

To begin with, the individual level is analysed and the most important actor at this level in the research is the Chief Executive Officer. CEOs have a central role in the interpretation of environmental trends and the selection of issues and stakeholders that they prioritise and therefore influence environmental sustainability outcomes^12,18. This happens through green investments as well as by influencing environmental strategy and the disclosure of environmental information¹. Regarding the characteristics and motivation of CEOs, there are several studies that have made interesting discoveries based on the upper echelons, resource-based view and principal-agent theory. For example, there are two opinions for older CEOs who have been with the company for a long time: on the one hand, they tend to avoid risky environmental investments, but on the other hand, they also improve the CES, as an awareness of sustainability has developed with age and experience^19-21. CEOs who are employed in their hometowns are also more motivated to drive CES forward, which is based on their emotional connection³. Another example is female CEOs, who have a greater interest in the environmental issues surrounding the company, similar to BOD²². Research focussing on CEO payments structures found that long-term CEO compensation, CEO compensation contracts with an environmental focus and CEO compensation linked to shareholder returns improve CES and increase motivation, while short-term payments worsen it through misaligned incentives^3,20.

In terms of experience, studies have found that training and length of service are important for improving CES. These aspects ensure that the disclosure of environmental information is increased, while a legal background reduces it^3,19. CEOs’ research background, financial knowledge and overseas exposure also increase the likelihood that they will encourage investment in environmental initiatives and related disclosure²¹. Accordingly, CEOs’ education and functional background are important for CES as intangible resources that provide relevant knowledge and information³.

The literature focussing on CEOs power also examines their gender and informal expert power. Again, it is argued that female CEOs are more likely to improve CES and that the position gives them the power and influence to do so²². Informal expert power was seen in the study as an intangible resource that gives experienced CEOs informal power over the board of directors. Accordingly, it would increase their self-confidence and risk tolerance as well as their ability to deal with the complexities associated with environmental sustainability³. The informal power of CEOs derived from their environmental expertise can contribute significantly to reducing the environmental impact of companies, especially when they have formal power over the board²². Their power can also amplify the positive effects of CEO political liberalism on social and environmental performance¹.

CSOs:

In addition to CEOs, there is another individual actor mentioned in the literature and this is the Chief Sustainability Officer (CSO). CSOs are emerging leadership positions responsible for promoting, coordinating and leading CES in organisations²³. The main argument regarding this position is that the motivation of CSOs to improve CES lies in the role and responsibility assigned to them²³. In addition to this responsibility, the relevant environmental knowledge was passed on to the CSOs, which enabled them to shape CES through mechanisms within the corporation. However, this only improves environmental performance in highly polluted industries²³.

Furthermore, the literature on the role of other individual CG actors, such as CSOs, is very limited. CSOs are important actors which should be in the main focus of future research because they are emerging leaders with specific roles and responsibilities towards CES. Considering the key role of CSOs in CES, further research on this actor will provide important insights³.

Top Management Teams:

After analysing the players at the individual level, the players at the team level include the top management teams (TMTs) and the BOD already mentioned. The BOD consists of internal members who oversee day-to-day business next to external members who have no influence on day-to-day business³. In contrast, TMTs consist only of internal members who have an influence on daily operations³.

When investigating on the motivations of TMTs regarding the improvement of CES, the effects of the psychological characteristics of TMT-members were examined from different theoretical perspectives. Studies found that TMTs’ environmental values strengthen CES while environmentally friendly TMTs are inherently more motivated to improve CES^1,24,25. Besides these aspects, TMTs’ environmental beliefs lead them to strengthen their companies’ ability to recognise environmental initiatives as a source of competitive advantage, to understand competitors‘ strategies and stakeholders’ expectations as well as to communicate initiatives in this area¹. Additionally, TMTs are more motivated when they perceive regulatory forces as threatening, e.g. if those regulations are legally binding or just recommendations and the companies are free to choose³. In examining the characteristics of TMTs, there have also been some meaningful studies. First, a rather small body of research examines the impact of gender diversity in TMTs on environmental outcomes, drawing on similar arguments to studies of board diversity and CEO gender, with high diversity and female CEOs leading to improved CES¹. Other studies show that older TMTs are more likely to take a more active approach to developing an environmental strategy. These older TMTs are tend to have better developed social networks that enable complex decision-making on environmental issues within the organisation’s supply chain¹.

In terms of the professional background and expertise of TMTs, studies found that TMTs improved CES in line with research and development through human and social capital, as they were able to utilise their available skills and resources²⁶. In addition, studies suggested that TMTs developed environmental awareness as they became more aware of environmental issues. The environmental awareness of TMTs improved CES due to increased environmental sensitisation²⁶. In terms of professional background, a higher level of functional diversity within TMTs strengthens their organisations’ ability to deal with the strategic challenges and trade-offs related to social and environmental sustainability outcomes²⁷. In doing so, they improve their ability to view environmental issues from multiple perspectives, process new information and recognise connections between different sustainability areas²⁷.

In terms of the power of TMTs, their engagement is seen as a strong internal political force that can improve corporate governance³. Studies that view TMT engagement as power show that it is used to appoint senior managers responsible for overseeing CES³. Thus, in addition to BOD as a sustainable CG mechanism, TMTs have a major impact on sustainability in the organisation³.

Employees:

At company level, the focus is mainly on two actors. For great importance next to the owners, which will be explained a bit later, are the employees. The research regarding their role will be explained and analysed like the other actors before. 

According to the literature, employees can play a major role in CES through three mechanisms: their voice in co-determination rights, their power in collective bargaining and their collective representation¹. The relationship of employees to other SCG actors is complex and depends on the power and resources of the different actors¹. In addition, the degree of importance that employees attach to environmental issues and the tactics they use to achieve their goals play a major role¹.

Employees either represent their interests vis-à-vis the company themselves or use trade unions. They tend to be reluctant to raise environmental issues and demands, as there is a fear that funds will be diverted away from employees and invested in new areas¹. According to research, most studies show that environmental clauses are rarely an integral part of collective agreements due to this reluctance^1,28. The only option for employees to influence environmental sustainability is through co-determination rights or work-councils that have a say¹. In this context, Scholz and Vitols (2019) examine the relationship between the strength of co-determination, measured as the degree of internalisation of the practice, and the social and environmental sustainability practices of companies²⁹. In German companies, weak co-determination only encourages participation in symbolic environmental practices, while strong co-determination applies substantive environmental practices such as the adoption of emission reduction targets²⁹. Successful implementation of co-determination and close coordination between company and state level agreements is needed to ensure that co-determination considers the interests of workers and mitigates long-term risks such as environmental risks¹. Trade unions are now using new instruments in negotiations, e.g. by using environmental arguments as points against employers and thus preventing relocations¹. In addition, they are forming coalitions with external social actors such as new social movements and non-governmental organisations (NGOs) to advocate for their concerns in relation to CES together with management and boards¹.

The research also examines how companies manage to persuade employees, as members of the organisation, to adopt the environmental management systems and policies they have developed¹. One focus is on identifying barriers to the introduction of these systems, whereby employees need support from the company in the form of training and professional orientation¹. Furthermore, employees often lack information about the environmental impact of their organisation, meaning that they are unlikely to understand the environmental issues they are expected to address through their involvement in the EMS¹. Communicating these problems more clearly and presenting the planned solutions would facilitate the adoption of these systems¹. Financial and non-financial incentives would also further motivate employees to engage wholeheartedly and legitimately with EMS¹.

Similar to directors and CEOs, employees’ own intrinsic motivation also plays the key role. Personal environmental attitudes drive employees to behave responsibly at work if they feel that their actions can make a difference¹. The values of the team and the desire to follow one’s own conscience improve the environmental behaviour of an individual employee and thus also the successful implementation of environmental initiatives¹. In addition, the environmental awareness and education level of employees determine the frequency of their environmental complaints, which determine the strength of internal pressure for CES^1,3. Similar studies say that the employees’ values and perceptions are critical for implementing and improving CES^24,30.

Owners:

Research on owners as CG-actors has shown that the attention and integration of CES depends on the type of owners, as they are crucial for the company’s strategy and thus also for the company’s engagement, response and reporting on environmental sustainability¹. Concerning this matter, different types of owners have a different impact on the company and these types include family businesses, the state or institutional investors¹.

In research on family businesses, proactive environmental systems are only fostered when there is a family commitment and long-term orientation³¹. In disclosure and certification efforts of family businesses, different levels of sustainability certifications depend on whether the companies are first- or second-generation family businesses due to the different moral approaches³². For example, the older generation ignores sustainability while the next one wants to implement it immediately. A comparison between the literature on family businesses and non-family businesses is often missing, as the term ‘family business’ can have different meanings in different countries¹. Another factor could be that these studies use different dimensions of environmental sustainability. Often they only look at one country, while other studies look across countries, which leads to different results¹.

In addition to family businesses, there is also great interest from institutional investors. Sustainability is often driven by these investors to ensure that relationships with other countries are characterised by the same social norms and the United Nations Principles for Responsible Investment (UN PRI)³³. Furthermore mutual fund investors view sustainability as a positive attribute, especially if companies score higher on the Morningstar Sustainability Rating¹. It is also important if investors are intrinsically motivated to exert environmental pressure to maintain their reputation and be perceived as responsible investors³.

There are only a few examples of state ownership in research. Most studies in this area were done in China and found out that state-owned enterprises achieve higher environmental performance. In addition, they are more environmentally friendly than private Chinese companies, which may also be due to the enforcement of environmental reporting regulations³⁴. A study of European companies got the result that state-owned enterprises are more environmentally proactive due to their greater ability to absorb externalities³⁵. In addition, governments are owners who are demonstrably motivated to improve the CES of investee companies to align with policy objectives³⁴.

There is a certain consensus in studies on the power of owners. They can exert great environmental pressure on companies, which is not least due to the dependence of companies on their owners³⁶. Studies analysing the impact of institutional investors’ environmental pressure on CES also point to a positive effect due to the dependence of companies on investors³. However, if there are concentrated groups of owners, this has a negative effect on the CES, as these groups are mainly interested in short-term profits and do not plan a long-term strategy³⁵.

3.4       Future Research

Having identified and explained some of the research findings on the various stakeholders in sustainable corporate governance, it is now explained which research and studies should be carried out in the future to further advance the development of this topic. To organize this, a suggestion for future research is made for each of the actors already mentioned and an outlook on the potential outcome is provided. 

In case of the Board of Directors, future research could investigate the extent to which the involvement of NGOs or similar groups through forums or committees influences BOD decision-making¹. In doing so, a closer look at the effectiveness of these involvements in terms of forming relationships with these stakeholders could provide an interesting insight¹. For example, ad hoc meetings in the early stages of engagement could be particularly helpful in gathering key information and identifying appropriate representatives of a particular stakeholder group to work with on long-term environmental strategy¹.

As described above, research so far focused on CEOs characteristics, background and motivation. In addition to these points, future research should try to find out something about the psychological processes or the specific behaviours of this actor^1,37. It would be interesting to get a closer look on how the decision-making-process of a CEO is done or how the relationship with the TMTs is structured as well as how other aspects of behaviour-oriented corporate management such as group thinking are anchored in the mind^1,37. Future research could therefore develop a more in-depth assessment of the cognitive underpinnings of CEOs and examine how social-structural relationships, institutional processes and social cognition influence their ability to understand environmental sustainability issues¹.

Regarding research on CSOs, it has already been mentioned that there is still little meaningful research. Often their role is still perceived as a symbolic one, future research should therefore focus on the power actually provided in this function, how the expertise of the person behind it can be decisive and how to promote the development of companies’ views on the need for this position^1,23.  

Top management teams have also received little consideration in the research, so in the future this should provide a more comprehensive assessment of how the characteristics of TMTs influence the environmental sustainability outcomes of organizations¹. Similar to CEOs, there is an opportunity to examine how relationships between organizational leaders and specific external stakeholders develop and shape^1,37. For example, it would be interesting to examine how TMTs use symbolic measures, impression management through press releases or other explicit public behaviours and communications to positively influence their legitimacy with external environmental actors³⁷.

For employees, it could be examined how boycotts on climate change issues would change the focus on environmental sustainability¹. So far, it has been proven that companies with an environmental commitment are more attractive to talented job seekers¹. These improve employee morale and increase employee retention rates³⁸. In addition to these points, research could explore what governance practices and employee incentives could be effective in aligning employee behaviour with companies’ environmental sustainability strategies and how these employees can be effectively rewarded¹. Research in emerging markets, in the digital economy and in the various subsidiaries of multinational companies could provide insights into how institutions give or take away the opportunity for employees to participate in companies’ environmental sustainability strategies¹.

However, owners, as the last declared actor, are far more often a decisive part in research. These have three unexplored characteristics that should be studied in research. First, it should be verified that companies with owners exercising excessive control through dual voting preferred shares have little accountability to non-voting shareholders and stakeholders, which could affect decisions on environmental strategies and behaviour due to weak or no shareholder voice^1,39. Secondly, there is little research on how institutional investors such as asset managers, sovereign wealth funds, common share index funds or private equity influence environmental sustainability¹. These shareholders are employing new tactics and future research could shed more light on these emerging trends by examining and comparing their impact on environmental sustainability outcomes. Third, research should examine how foreign ownership affects environmental sustainability decisions in the firm’s home and host markets and how these effects may depend on the stringency of local environmental standards^1,40.

4 Practical Implementation

The practical implementation of sustainable corporate governance takes place through the application of CG mechanisms. These mechanisms include, on the one hand, the stakeholders and their influence and, on the other hand, rules and codes that determine the application of SCG. The following section presents measures that companies should take in order to implement SCG. To this end, an example of how SCG is applied in a large German company is presented. Further drivers and possible barriers to implementation are then identified and explained as to how they promote or prevent SCG. These suggestions are based on the possibilities mentioned in the literature to influence the individual actors and the idea of drivers or barriers that can be created by external actors.

4.1       Mechanisms and Tools

As a first decisive measure, a company should make the implementation of SCG the responsibility of the Board of Directors². As already described, the understanding of sustainability has developed from that of ordinary employees to the area of responsibility of managers, as they have the greatest influence on environmental sustainability through the development of the corporate strategy². It is important that managers develop an awareness of the three dimensions which can be influenced by sustainable corporate management. In further steps, the company should determine a fixed number of members of the BOD. This will help to secure expertise, but care should be taken to ensure that the BOD is neither too large nor too small⁹. A BOD that is too small would have too little expertise, while too many members in the BOD can lead to too many different interests and thus to more conflicts. In addition, an environmental committee should be incorporated into the BOD¹⁰. This committee should have specialized environmental knowledge through specific support and training to establish links with important environmental groups in order to expand this knowledge¹⁰. In addition to these aspects, attention should be paid to diversity in the composition of the BOD. Female members and members of different age groups promote environmental sustainability in the company through different values and training¹⁵. Female members are characterized by a particular passion for ecological and social issues and thus lead to the improvement of CES⁴¹. Therefore, every BOD should have at least one female member. 

In addition to the BOD, the CEO is also crucial for the successful implementation of CES. When selecting the CEO, companies should ensure the person’s background is close to the company and a certain loyalty to the company is present³. This connection to the company and the region leads to greater motivation to shape it sustainably and improves the CES³. Like the BOD, female CEOs also lead to an increase in CES through their intrinsic motivation, as they can set an example for employees¹⁵. The commitment and training of a CEO from within the company’s own ranks also leads to improvement, as they often drive the disclosure of environmental information, which in turn leads to companies performing well in the publication¹².

As a further measure, companies should appoint a CSO, meaning there would be a person responsible for sustainability aspects within the company²³. However, this person would need to be specially trained, e.g. through training courses and seminars that develop sustainability awareness²³. To fulfil this role, the CSO would need certain rights and responsibilities. These include the right to have a say in strategy selection, as they should know the expertise for relevant sustainable topics and apply this knowledge when implementing a strategy²³. Although there is little research on CSOs, the appointment of a responsible person would lead to progress in CES within the company³.

In addition to the CEO, the TMTs should also be involved in the implementation of SCG. When appointing them, care should be taken to ensure the members have a certain age, as older members often have better developed social networks and can be used to improve CES³. In addition, these members should be informed about current environmental problems so an awareness of these problems develops in their minds³.

In order for SCG to be implemented, the participation of a company’s employees is crucial, as they should know why a sustainable strategy is being pursued. Employees must therefore be  sensitised and incentivized, e.g. by giving them important knowledge and afterwards a greater say in the choice of strategy²⁹. This could be done by involving the works council in certain sustainability decisions and thus strengthen successful implementation²⁹. In addition, companies should create programs for employees who are interested in the topic and would like to develop their skills in this area or tend to gain an insight into sustainability in the company in the first place¹. These offers can be training courses or seminars, which can also be organized by external providers. There should be the option of voluntary training, but for certain positions this training should also be mandatory, so a basic understanding exists. This understanding would enable employees to understand why certain measures are being implemented and would therefore be more motivated to make them successful¹.

As a final mechanism, company owners must promote CES and thus SCG in their companies. In family businesses, an awareness of sustainability should be instilled from the very beginning of employment in the company. This can be achieved through targeted education, training and tradition within the family and improve CES in the long term^31,32. For owners who are institutional investors in the company, it is important that they promote CES by viewing sustainability as a positive attribute.¹ Companies need to become more sustainable in order to become more attractive to investors who see it in a positive light. For example, many of them are very interested in companies promoting and implementing the UN PRI³³. By implementing these, companies take environmental, social and governance aspects into account in all their activities, which leads to an increase in CES. In addition to these owners, there is also the state as an owner. Companies should take this as an example when implementing CES, as states’ companies often achieve a higher environmental performance³⁴. The state adapts its environmental performance to political goals and companies that already have a political orientation could follow this example and implement SCG in their company³⁵.  

4.2       Driver and Barriers

In addition to the internal actors who can promote the SCG through certain mechanisms, there are other drivers or barriers that improve or prevent successful implementation.

The first of these drivers of SCG are the reputational agents. These include press and media, research and educational institutions, credit agencies and auditors. They encourage companies to become more environmentally sustainable because they are able to promote environmental awareness and problem solving^16,42. In addition, they drive the development of CES by making companies aware of the risk of public exposure⁴². In addition to these reputational agents, there are other drivers such as local communities, NGOs, trade unions, associations and interest groups. These collectively drive companies to ‘do the right thing’ as they are concerned about the quality of the local environment and social aspects^24,25. Above all, pressure from collective interest groups drives successful implementation, as companies depend on them to survive³. In addition, stakeholder representation within company boards also increases CES, as they can use the power of stakeholder voices to enforce environmental preferences⁴³. Stakeholder representation should therefore be elected and involved in environmental decisions as part of the implementation process.

One of the biggest drivers of SCG implementation are the regulatory authorities. Governments are often motivated to support the development of sustainability, as they can thereby promote measures aimed at achieving specific policy goals²⁵. They have also been shown to use their power to intervene in a way that increases the environmental activity of companies and thus drives it forward³. However, this often only works if the companies perceive the regulatory authorities as critical stakeholders for the survival of the company, which is why CES does not develop in the opposite case⁴⁴. Regulatory authorities are now developing legally binding regulations that improve CES and can lead to fines and reputational damage in the event of non-compliance. These strict regulations also improve CES because compliance gives companies a certain legitimacy³. There are a number of rules and codes, such as the ISO 14001 certificates, the German Corporate Governance Code or the ESG principles mentioned above, which companies should implement. ISO 14001 certification is used as part of an organization’s environmental management system to manage environmental aspects, meet binding commitments and deal with risks and opportunities⁴⁵. It was introduced by legislators to create an international standard that helps companies and other organizations to develop an environmental management system in order to be able to demonstrate that it has been implemented⁴⁵. The introduction of this certification often contributes to better organization and a more systematic, efficient approach to corporate environmental protection, cost savings and greater legal certainty⁴⁵. The German Corporate Governance Code aims to provide principles, suggestions and recommendations to the management and supervisory boards of companies to help ensure that the company is managed in the interests of all stakeholders⁴⁶. More and more sustainable aspects are now being incorporated into this Code, emphasizing the obligation of both parties to act in the interests of the continued existence of the company and to ensure its sustainable value creation⁴⁶. The aim of this code is to make German corporate governance systems transparent and comprehensible. The application of these principles is recognized nationally and internationally as a good standard for trustworthy corporate governance and contains measures which have been explained already, such as the principle that companies should set a quota for women on the Management Board⁴⁶. This leads to the recommendation to ensure diversity on the board, which is crucial for the implementation of SCG in the company. In addition to these two requirements, there are also the ESG principles, which are also directly related to SCG. ESG is a framework that includes the aspects of environment, social and governance⁴⁷. It is usually a standard and a strategy used by investors to evaluate the behaviour of companies and their future financial performance⁴⁸. In addition, it is seen as a value of sustainable and coordinated development that takes into account economic, environmental, social and governance benefits^47,48. ESG is therefore an investment philosophy which seeks long-term value creation and a comprehensive, concrete and down-to-earth governance method that companies should implement to successfully shape SCG⁴⁷.

The first barrier which can stand in the way of successful SCG implementation are companies with owners who exercise excessive control through preference shares. These owners have little accountability to non-voting shareholders and stakeholders, which has a high impact on decisions about environmental strategies and behaviour due to the weak or absent voice of shareholders¹. Companies should therefore be careful not to offer too many of these shares, as they can worsen SCG. The second barrier of importance is the current state of research. It often uses samples of companies based in North American and European countries, so there is a geographical limitation¹. Future research should examine how SCG is implemented in the Asian region, as this could provide new incentives for both North American and European-based companies. Without this insight, implementation may be more difficult. The third barrier is the perception of regulatory authorities and external stakeholders. These only can ensure SCG implementation through the implementation of laws and protests if they are considered relevant by the Board of Directors³. They have limited bargaining power and the perception of the relevance of these actors is therefore crucial. The fourth and final barrier is the composition of the Board of Directors. On the one hand, BODs without diversity lead to disadvantages for companies, as there is a lack of different perspectives and different values, which together would lead to an improvement in SCG^9,15. On the other hand, a BOD composed of a large number of board members would have difficulties in coordinating its activities and would not allow the active participation of all members⁴⁹. This also leads to a disadvantage and prevents the improvement of SCG.

4.3       Best-Practice Example

Having explained how SCG can be successfully implemented, a real-life example of a company that already operates a certain level of SCG through sustainable business practices is examined. Deutsche Telekom is one of the world’s leading integrated telecommunications companies and offers products and services in the areas of fixed network/broadband, mobile communications, Internet and Internet-TV for private customers as well as information and communication technology solutions for corporate and business customers. The company aims to act very sustainably and, under the slogan ‘Living responsibility’, to combine economic, social and ecological aspects. How they have integrated sustainable corporate governance and which aspects are addressed can be found in the corporate governance statement they publish on their Group website⁵⁰. In this declaration, they explain how they intend to manage the company through good governance geared towards sustainable value creation. To ensure this, Deutsche Telekom has fully complied with the recommendations of the German Corporate Governance Code, except of one exclusion. They must justify this exception and do so in their declaration. In addition, they anchor the topic of sustainability in their corporate responsibility and do this through special sustainability management. This serves to consider the interactions between economic, environmental and social aspects in strategic planning in an efficient and solution-orientated manner⁵⁰. For further implementation of SCG, particular attention was paid to the composition of the Supervisory Board. In the case of Deutsche Telekom, this consists of seven committees, one of which is the Strategy, ESG and Innovation Committee. This was only developed from the existing Technology and Innovation Committee on the first of January in 2024 and regularly deals with the Group strategy, the strategy of the business segments, ESG issues and the preparation and decision-making on mergers and acquisitions (M&A)⁵⁰. Furthermore, in accordance with the recommendations of the Code, a target percentage for the proportion of women on the Board of Management and in the two management levels below the Board of Management as well as deadlines for their implementation have been set and Deutsche Telekom pays attention to diversity when filling management positions in the company and, in particular, strives to give appropriate consideration to women and internationality⁵⁰. To this end, a diversity concept has been developed which, in accordance with the law, also ensures that 30% of the members of the Supervisory Board are women and 30% are men and that the composition of these bodies is more diverse in terms of background, gender, origin and age⁵⁰. The concept also states that the Board of Directors should have many years of experience in the fields of telecommunications, technology, innovation, finance, digitalization, human resources management, law and compliance. The Supervisory Board has set a target of 38% (3/8) women on the Executive Board by the end of 2025. An age limit of 65 years generally applies to members of the Board of Management and currently no member of the Board of Management is older than 65 years. In addition to these aspects of the diversity concept, Deutsche Telekom declares in this document that certain areas of expertise are necessary to fulfil the mandate on the Supervisory Board. One of these competences is referred to as ESG competence and includes criteria such as environmental and social sustainability and additional competence in areas e.g. as sustainability management⁵⁰. A Supervisory Board member must therefore have these competences. In the case of Deutsche Telekom, one person was designated by name as an ESG expert as she has proven experience and expertise in the areas of environment, social and governance and is therefore the person responsible for these aspects⁵⁰.

After analysing the practical example, the aforementioned regulations and measures have led to an increase in SCG within an internationally based company. The most important criteria here are the frequently mentioned diversity on the Management Board and Supervisory Board and the appointment of a person responsible for sustainability within the company. Even small steps can lead to an improvement in SCG, increase the legitimacy of companies and lead to society and companies working together to ensure that the world once again develops into a sustainable and resource-conserving world. For this to succeed, SCG must be a significant part of the development and foundation of future companies.

5 Conclusion

As mentioned at the beginning, the topic of sustainable corporate governance is a growing and essential part of corporate organisation. It aims to organise the rights and obligations within the company in such a way that all stakeholders and members of the company are generally and sustainably scrutinised. It shifts the view from short-term profit maximisation to the long-term existence of the company with continuous profit. The need for sustainable corporate governance is also increasingly emphasised in the literature, the development towards sustainability is described as mandatory. Companies can shape this through mechanisms and stakeholders close to the company by providing them with the motivation, the necessary knowledge and the right working conditions to contribute their own ideas and suggestions. In addition to this, companies should start working together with the states or see them as an example for the implementation of legislation and successfully integrate the regulations and laws offered by them. In the practical example described, a large German company shows how this a successful beginning can be done and what development can follow. Of course, given the current state of research, there are also some limits and topics that need to be explored, but the increasing responsibility of companies for society will certainly shed more light on these in the future.  

Ultimately, the development of companies in the SCG sector will mean that, in cooperation with society, they will have to make the transition from a currently resource-limited world back to a sustainable world. It has to be done so these companies can continue to exist in the future and society can survive major challenges such as pandemics or similar. Other companies which do not want to take on this challenge of implementation will not survive in the long term and will be taken over by companies that think long-term. It will be interesting to see what role developing technology such as artificial intelligence can play. But the key to survive is sustainable corporate governance.  

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