Despite all the research, endless media coverage, extreme weather events around the world and even a global conference on our shores, it seems UK businesses still struggle to get their heads around climate change.
New research from Heidrick & Struggles, an executive searth firm, together with the INSEAD Corporate Governance Centre, reveals many boards have yet to obtain the right knowledge for handling their climate policies, while others have yet to define the appropriate targets to ensure they’re on track to meet the needs of a “net zero” world.
The data reveals 43% of board members says their companies have yet to establish “clear targets” for carbon emissions. That’s a worry, but perhaps more concerning is the 83% of board members who say their board needs to increase their climate knowledge. And all this while 75% say climate change is “very or entirely” important to the strategic success of their companies. As the report says, there seems to be a stark disconnect between what board members say about the significance of climate change and what they’re doing about it.
That may cause anxiety among policymakers who have invested heavily in promoting their sustainability credentials by convincing companies they have to adjust their business models to tackle climate risk. This has been reinforced mostly through the introduction of a swathe of disclosures rules, including reporting guidelines from the G20’s Task Force on Climate-related Financial Disclosures (TCFD) which go back to 2017 and are in the process of becoming mandatory in the UK.
From 2023 UK companies must also publish their transition plans for moving to a “net zero” world. Meanwhile, the European Union is working a new set of laws covering environmental disclosure, the Corporate Sustainability Reporting Directive, and the US is consulting on new mandatory reporting rules.
That’s not all: companies have been subject to extensive campaigns by not-for-profit organisations while shareholders have been badgering boards to sort out their climate policies for several years, supported by the rise of sustainability indices and organisations such as Principles for Responsible Investment (PRI).
The chair and climate policies
So what’s going on? Why do so many board members feel detached from the climate issue?
There’s no doubt that its a pressing problem and if boards haven’t got the message, investors, as mentioned above, have. And if the constant news reports of impending climate disaster haven’t convinced boards to shift gears then the business case should have done.
According to Sonia Tatar, executive director of the INSEAD Corporate Governance Centre, governance developments have moved at a “fast pace” in recent years, a process making climate an urgent issue for company owners. “Investors are prioritising organisations whose actions are combating climate change and stakeholders are urging boards boards to be climate change stewards.”
All well and good. But why are boards not budging? It may be a personnel issue. Or a training gap. Or perhaps a leadership deficit. Boardroom chairs have a particularly important role in setting company agendas, according to Alice Breeden, a member of the Heidrick global leadership team. She says chairs should be ensuring climate is a “priority” issue on the agenda. And if that’s not the case it may require change. “The role of the chair may need to be challenged and re-thought in some cases,” says Breeden.
But this means moving to a climate agenda depends on “green champions”—key individuals who clamp their feet on the climate change accelerator. This may not be an optimal state of affairs. Indeed, Dr Craig Anderson, an economist at Stirling Management School, dubs this a “fragile” approach lacking a “wider knowledge base” to bring about lasting change. “Upskilling” is therefore required on boards.
Consensus: the new frontier?
Then again, new and improved skills may not be enough on their own. Not all board members share the same values, says Anderson. Addressing the issue of consensus on boards therefore looms darkly over boardroom climate decisions. And achieving consensus may depend on whether sustainability can be framed as either a loss or gain, the perception of short and long-term priorities, data-to-day management firefighting and the way climate compares to other pressing risks.
Consensus-finding may then be the toughest issue of all to overcome, and the real frontier in boardroom efforts to confront the climate crisis. “This will be the next step in learning to put a true value on sustainability,” says Anderson.
Others concede reaching agreement may be a ordeal, but they return to the knowledge gap as an explanation. Though says, Dr Sarah Ivory, an expert on business and climate change at the University of Edinburgh Business School, it produces an additional dynamic: “fear” in board members about what to do. This is compounded by having gained all their experience in a business world orthodoxy that values decision making based on “quantitative” data rather “qualitative”, the kind of information driving sustainability decisions.
This causes boards to sit tight until they are given a clear signal on their next course of action. “It’s an such all-encompassing, world-changing issue that you can’t know all there is to know about climate change,” says Ivory. “And because it is such a worrying, stressful and, actually, a pressure situation, I think board members are holding back and waiting for someone to tell them what to do.”
That certainly leaves boards with much to contend with, and much of it about themselves rather than policies and decisions. Whatever the reason for falling short on climate—targets, skills and knowledge, consensus building or just plain fear—boards should be seeking solutions and soon. Many will be. Those still hesitating will need to catch up—and fast. The world is relying on them.