BlackRock CEO Laurence D. Fink’s annual letter explicitly challenged CEOs— and implicitly their boards—to improve disclosures on climate change and its impact. Citing new research from McKinsey & Co. on the “socioeconomic implications of physical climate risk,” Fink’s January 14 letter urged CEOs to serve all their “stakeholders,” inviting comparisons to the Business Roundtable’s August 2019 revised statement on the purpose of a corporation. Responding to Fink’s letter specifically, NACD CEO Peter R. Gleason wrote in a blog, “In the long run, shareholder and stakeholder values converge. A company cannot create long-term value without serving the long-term interests of other stakeholders—including the planet itself.”
Climate change risk was also underscored by the World Economic Forum’s (WEF) Global Risk Report 2020, released the day after the Fink letter. In an opening letter to the 15th annual report, WEF President Børge Brende, noted: “Respondents to our Global Risks Perception Survey are also sounding the alarm, ranking climate change and related environmental issues as the top five risks in terms of likelihood—the first time in the survey’s history that one category has occupied all five of the top spots.”
Yet in the NACD 2019-2020 Public Company Governance Survey, climate change was cited as a top environmental, social, and governance (ESG) concern by just 25 percent of respondents—a vast disconnect from the seismic calls to respond to climate change by the world’s largest asset manager, the influential WEF, and increasingly customers.
Implications for Boards: Investors will continue to call for increased disclosure on how climate-change risk is being evaluated both in the boardroom and by the company as a whole. Directors should ensure that management has identified all potential climate risk impacts to the company, including transitional and physical risks. Furthermore, mitigating such risks may require boards to work with management to make investments that may, in the short term, decrease profits.
Key Questions Directors Should Ask:
The blog post titled “Talking About Climate Change to Get Investors to Listen” discusses how boards can change up their efforts and messaging surrounding oversight of climate change to better engage shareholders. For its contribution to NACD’s 2019 Governance Outlook report, Ceres developed a piece on “Getting Climate Smart in a Changing Environment” that covers the board’s role in the oversight of climate change, and how trends in climate change effect board duties. In addition, in a webinar cohosted by NACD and Broadridge Financial Services, “Climate Change: Risk Oversight and Opportunity Assessment,” experts talk about the oversight of disruptive risks, how to approach investor relations, and questions to pose to management on climate change.