Curbing Climate Chaos Will Require Innovation, Leadership from Boards
“This will be the biggest transition since the Industrial Revolution,” said Friso van der Oord, moderator of a climate panel at NACD Summit 2021, referring to the current momentous shift to a low-carbon economy.
“Are boards ready to guide their companies through this mounting challenge, but also growing business opportunity?” he asked in his opening question for the panel comprising professionals from all sides of the business-climate nexus, who shared nuanced and balanced ideas on the topic of climate strategy in the boardroom.
Panelist Karina A. Litvak brought an international perspective from her experience serving on the boards of Italian oil and gas major Eni and energy and waste management company Viridor, and as chair of the Climate Governance Initiative. Tom Palmer, president and CEO of Newmont Corp., drew from his experience leading a storied mining company with ambitious climate-related plans. Michelle Edkins, managing director of BlackRock’s investment stewardship group, brought the asset manager’s point of view. Finally, Granville Martin, head of Americas policy and outreach at the Value Reporting Foundation, rounded out the panel and contributed to the discussion with insights into climate disclosures.
Varied Approaches to the Climate Dilemma
In response to van der Oord’s first question, Edkins replied that most boards do seem to understand the seriousness of climate change as a disruptor and are making the necessary shifts to meet climate-related challenges to their businesses. But she also noted, “We are all on a steep learning curve here, and the more we can be interacting, sharing insights, sharing learnings, the better we will be prepared to adapt what we do.”
Taking a self-professed “glass half-empty” approach to evaluating boards’ preparedness when it comes to confronting climate change, and in contrast to Edkins, Litvak remarked that many boards and individual directors are at the very beginning of their learning curves, and do not have the same oversight and evaluative capabilities on environmental, social, and governance (ESG) issues as they do on finance, risk, and human capital management. Litvak added, however, that the interest in climate matters from investors such as BlackRock has made a difference. “The change has been spectacular in the engagement of investors and that has influenced the way that my board thinks about this, and that gives me hope.”
In Palmer’s view, climate change highlights the necessity of having a diverse group of directors, as boards with a more global perspective and some experience operating under stricter European regulations are better positioned than boards who lack this diversity of experience. “Boards and companies will pick it up quickly. It will be an existential threat if you don’t.”
Martin remarked, however, that it is difficult to make blanket statements on board preparedness as the distribution of climate-related consequences has not been uniform. While some larger company boardrooms have been having serious conversations about their responses to climate change for much of the last 20 years, most companies are just now beginning their climate journeys. “Many small and mid-sized companies are earlier in their journeys in thinking through what climate actually means for their [companies] and their ability to innovate and generate value in the long term,” said Martin.
Being ready to guide a company through the evolving challenges posed by climate change includes understanding what it means to be “climate fluent” as a board. Panelists agreed that boards should avoid the trap of relying on a single climate expert, which might leave an organization vulnerable to the expert’s individual blind spots and biases. “You don’t need a climate scientist on your board,” said Palmer. “You need a group of directors who are prepared to ask the piercing questions.”
The key to climate fluency is a “learn-it-all” board that is willing to ask the right questions and understand the answers well enough to rigorously test assumptions and approaches. This requires that directors be proactive in learning about climate change, innovations made necessary or possible by new science and technology in response to climate change, and what corporate governance practices are most effective. There also needs to be recognition by the board of a shared responsibility for climate fluency.
Being a climate-fluent board also requires understanding how to disclose the work the board and company are doing with regard to climate issues. Where to start, when there are so many varied reporting frameworks in the field? “Boards first need to decide why they’re reporting and to whom,” Martin commented. “Once a company or board concludes who their audience is, I think it helps them make their way through the multiplicity of reporting frameworks and standards.”
Litvak observed, “Reporting is never an end [in and of] itself. It is immensely effective in driving cultural change inside the boardroom.” Having stricter reporting standards in Italy inspired her company to strengthen its internal reporting system, for example.
Active Climate Governance
But what does climate governance look like in action? Newmont has set a target of 30 percent reduction of carbon emissions by 2030, and net-zero emissions by 2050.
“It’s an evolution when you are approaching your business with sustainability front and center,” Palmer offered in response to a line of questioning about how the company decided to make such a commitment. “The purpose of Newmont is… to create value and improve lives through sustainable and responsible mining. If that is in the DNA of your company, then a challenge and an opportunity like climate change is just one of those evolutionary issues or opportunities that you take on as a board and management to address.”
Governance is the key, he said. “We firmly hold the view that you will not get sustainable environmental or social performance unless you’ve got robust governance in place.”
Ultimately, Newmont plans to meet its 2050 target by following three essential steps:
Continuously improve through smaller projects that change the way the company operates.
Adopt renewable energies to offset the move away from fossil fuels.
Introduce and adopt new, greener technology that has the potential to disrupt the industry.
Hope Amid a Bleak Landscape
Despite a sea of bleak news about the world’s climate, Palmer remarked that he has witnessed a change of pace as greater numbers of people throughout the world take climate change seriously. This includes younger generations. In this vein, Litvak shared a comment that a young engineer left on a blog launched by Eni’s CEO when the company announced its climate commitments. “I have been agonizing for years on how I can put my skills to the service of humanity,” the engineer wrote, “and you have suddenly given me the hope that I will be able to do that.”
This content was written by a team of NACD editors.