June 12, 2018
June 12, 2018
Investors are on to a definite theme these days—and Kinder Morgan and Anadarko Petroleum Corp. are the latest companies to experience it.
Earlier this month, investors in the energy infrastructure giant backed shareholder resolutions calling for more transparency and reporting on how Kinder Morgan is addressing the impacts of climate change and mitigating the risks. A similar resolution at Anadarko also received a majority vote this month.
This is a trend that has picked up steam during recent proxy seasons, with shareholders just last year voting in favor of climate change resolutions at major firms, including Exxon Mobil Corp., PPL Corp., and Occidental Petroleum Corp.
As I wrote in a recent NACD blog, one consequence of this growing focus on climate risks is that investors, led by major money managers such as BlackRock and State Street, are increasingly emphasizing the role of corporate boards in driving company responses.
And now Systems Rule, a new report from Ceres, shows that investors are right to push for strong governance systems for sustainability.
Our analysis of board governance practices and performance data of large global companies found that businesses that integrate sustainability priorities such as climate change into board mandates, director expertise, and executive compensation also demonstrate strong performance on sustainability issues.
The report provides important insights for boards to pay attention to as they consider how to oversee climate-change-related risks and strategy.
But here’s the issue: Most large companies aren’t among these performers because they still have fragmented systems of board governance, especially when it comes to sustainability oversight.
This is partially true because many directors and company leaders still do not understand the material impacts associated with environmental and social issues, like climate change. In fact, Systems Rule noted that only 17 percent of corporate directors have demonstrated expertise in sustainability issues.
For companies to get moving and establish governance systems that can deliver commitments and performance on climate change, the whole board needs to start by establishing some baseline fluency that will help them understand when these issues could in fact be material.
That’s where a new Ceres primer, Getting Climate Smart, can help.
Developed specifically to increase board fluency in climate change, the report provides an overview of the different ways that climate change can impact an enterprise and how boards can integrate climate change oversight into their responsibilities in the boardroom.
It’s designed to be a valuable tool for corporate directors who want to educate themselves on what this issue means to their business and what they can do about it.
So how practically can directors build climate competency into their board?
The takeaway from our research is clear. It pays for companies and boards to adopt strong board oversight systems for climate change. But as a first step, boards should first develop climate fluency to understand the material risks their company may face. Fluency with the issues and strong, holistic governance systems will lead to the performance impacts that investors and other stakeholders want to see.
Veena Ramani is program director of capital market systems programs at Ceres.