The Power of Climate Competent Boards
Keith Tuffley
The Paris Agreement has entered into force, and at COP22, the so-called “implementation COP,” the focus has rightly been on quickly turning that vision into concrete action.
Tangible action that locks us into a net zero greenhouse gas emissions trajectory, as quickly as possible, is more vital than ever. But just as Paris entered into force, the geo-political landscape shifted dramatically.
There is no need to overstate the importance of the U.S. election. We are all preparing to navigate a new reality in which the world’s second largest emitter becomes, at best, less active on emissions reductions and at worst, a countervailing force to the climate change movement.
We don’t have the luxury of time to see how this will play out. The Earth is operating on a different timetable, and science is not waiting for us. Our window for limiting global temperature rise to “well below 2-degree Celsius” as the Paris Agreement stipulates is closing, fast.
The urgent question before us is – are we still up to the task? I believe we, as business leaders, are not only up the task but are better placed than ever to tackling this challenge. The economic, financial and social opportunities from doing so are compelling.
It’s not a stretch to say that we may be entering an era in which businesses and CEOs are the last and greatest hope for stopping climate change, and saving civilization.
For business leaders, the impetus for action has never been stronger. The business risks associated with climate change – from supply chain disruptions to market uncertainty – are real, and they are already happening. There’s no compelling business reason not to quickly grasp the opportunities presented by the transition, including economic growth, new market opportunities and increased license to operate.
As our partners at the We Mean Business coalition have pointed out, businesses benefit from a higher average internal rate of return on their low-carbon investments, alignment with incoming climate and energy regulation, more resilient operations and supply chains and a stronger reputation among employees, consumers and other stakeholders.
We’ve seen CEOs take the lead, seeking to realign their companies to reduce emissions, limit their environmental impacts and become more sustainable.
And we see more and more institutional investors placing strong bets on low-carbon and electric vehicles; solar, wind, hydro and geothermal energy; and water and waste management – and asking the other companies that they invest in to prepare for and respond to the climate crisis.
Largely missing from this picture, however is the third leg of what might be thought of as a corporate climate triad – the boardroom. CEOs and investors cannot do it alone – boards must be an active part of this transition. In the face of this shifting corporate ecosystem, we need more boardrooms to become “climate competent.”
A climate competent boardroom is one with knowledgeable and forceful “Climate Champions”, helping to create organizations that are generally educated and informed on the risks and opportunities presented by climate change to the company. Climate competent boards are better positioned to help their companies to avoid those risks and seize those opportunities, by making the challenging transition to net-zero greenhouse gas emissions.
With climate competent boards, companies will be better able to integrate climate change into the strategic planning process, by normalizing it as a standing item on board agendas. For a company adopting net-zero emissions targets, for example, such a board can help trigger big changes at all levels of the business, providing top-down strategic direction and empowering bottom-up technical implementation by the company.
Climate competent boards can also actively communicate with shareholders and other stakeholders on climate issues, helping to inform the establishment of policies for engaging with institutional investors and shareholder proposals on climate issues.
Perhaps most importantly, “climate champions” can hold boards and management accountable on climate issues, from making it a regular component of the board evaluation process to holding executive teams accountable through appropriate short, medium, and long-term incentive structures which permeate the entire company.
The political situation may have changed, but the science behind climate change has not. This is a global issue with worldwide ramifications, but our path to a net zero emissions economy is still compelling, and the business case for it remains incontrovertible.
Tackling climate change remains an unprecedented economic opportunity. By seeding more boards with climate champions, and creating more “climate competent” boards, we’ll help create even more businesses ready to fight climate change, and lead in the face of policy uncertainty.