Topics:   Risk Management

Topics:   Risk Management

April 8, 2021

Panel Addresses Boards’ Role in Climate Crisis

April 8, 2021

Industry experts on March 23 shared insights into how boards can focus their efforts toward promoting sustainability amid rising investor and regulatory pressures—and a growing sense of urgency.

Peter Gleason, CEO of NACD, told professionals that NACD views tackling climate change as a “full board sport,” wherein the climate crisis is a risk multiplier across the organization, from regulatory and compliance to capital and human capital risks.

As such, he explained, climate change cannot be a bolted-on item on the board’s agenda. Rather, it has to be treated as an integral part of where the company will be in the future, he told those listening to the panel hosted by the chapters of the Climate Governance Initiative (CGI) in collaboration with the World Economic Forum.

Similarly, Gleason did not appear to broadly embrace the notion of creating separate sustainability committees on boards, noting that only 1 percent of companies in the Russell 3000 had done so last year. Circumstances may be such that a sustainability committee is useful on a temporary or permanent basis, but even so the whole board needs to be involved in the issues, he said.

A key role for the board is in making sure there is a clear owner of sustainability issues within management and that management leaders can communicate the risks climate change poses and integrate that into corporate strategy so the board can oversee everything that is taking place, according to Gleason.

Fellow panelist Susan Hooper, founder of Chapter Zero in the United Kingdom and nonexecutive director with Uber Technologies, Affinity Water, and Moonpig, similarly emphasized the importance of incorporating sustainability into strategy. Directors don’t need to write that strategy but as members of the board they have the right to demand that there is a plan, and to make sure sustainability is embedded in the corporate strategy, not just featured as a page in a report, she said.

Hooper added that the CEO and board chair need to have bought into this approach and ensure there is the right leadership in the company to carry it out. She also pointed out the need for, and lack of, relevant competence on boards—at least in the United Kingdom. The desire to promote sustainability expertise on boards was the motivation behind the creation of Chapter Zero, which she said is intended to be a forum for directors in the United Kingdom to learn from and support each other.

The CGI is setting up a global network of national and regional chapters to promote the implementation of its climate governance principles for boards of directors, which were released in January 2019. The aim is to help directors gain climate skills, integrate climate considerations into board decision-making, and understand and act on the risks and opportunities that the climate crisis presents. Similar chapters have opened in places such as Canada, France, Italy, Russia, and Switzerland.

The lack of climate expertise on boards was highlighted earlier this year in research by the New York University Leonard N. Stern School for Business Center for Sustainable Business. The study finds that 29 percent of the 1,188 Fortune 100 board directors examined have relevant environmental, social, and governance (ESG) credentials, but that this total is largely concentrated on the S (social) element of ESG. Twenty-one percent of directors have relevant S experience, but only 6 percent have governance (G) and 6 percent environmental (E) experience.

The research finds that across the Fortune 100 just five directors have relevant experience on climate change and two directors have relevant experience on water—both issues of material importance to most companies and to investors. Between 1.2 percent and 0.01 percent of directors have relevant expertise in each of the nine categories of environmental issues covered in the study.

Tensie Whelan, clinical professor for business and society and founder and director of the Center for Sustainable Business, told Corporate Secretary in January that although investors are at present targeting improved board diversity, their next focus will be on ESG skills among directors.

This article was originally published on the Corporate Secretary website on March 25, 2021 and has been lightly edited here to adhere to NACD’s style rules.


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