Climate Change is now on the boards’ agenda. There is still a gap between directors’ views on climate change (essentially that it’s a strategic issue of critical importance) and the actions taken by their companies about it (essentially very little). Based on a survey of dozens of directors in 43 countries, ten pieces of advice emerged for boards in 2022, including conducting a board-effectiveness review focused on climate; refresh the board make-up to ensure climate expertise and linking executive compensation to climate targets.
We have some optimistic news to kick off 2022: Climate change is at long last on the corporate-governance agenda, according to our research. When we surveyed 301 directors of companies headquartered in 43 countries, three-quarters of our respondents said they recognize climate as very important to their companies’ strategic success.
At the same time, however, our findings revealed a stark disconnect between what boards say and what they do. For example, in our survey 72% reported being confident that their company will reach its climate goals, but 43% haven’t yet established any carbon-reduction targets.
The good news is that it is actually quite easy to bridge the gap between climate action and good intentions. These are the ten things that every board should do in 2022 to prepare their company for this critically important issue.
Conduct a short board-effectiveness review, specifically about climate change.
Audit what your board does know and what it must know. Our research suggests that 85% of boards need to increase their climate knowledge, so you may need some outside help just to ask the questions. Directors know what’s on their minds, so they can tell you. It is fundamentally a question of whether directors are sufficiently informed about climate change to be able to effectively oversee these important issues.
Determine how to plug the knowledge gaps uncovered by your review.
You don’t need an expert on every topic to have a board, but you do need one for climate change. As it happens, our respondents were split down the middle on this question, but to the 50% who answered “no,” we ask: Do you need external climate advisers to the board? Is it possible to learn more from the executive committee (while still being able to monitor their performance objectively). Do you have a temporary solution, such as a job offer? Or an educational program. Or membership in a specialist organization such as Chapter Zero.
Bring new voices to the boardroom.
Depending on our two pieces of advice above, it may be necessary to refresh your board members sooner than you think. You will likely want to update your board refreshment strategy so that climate change is included in the competency matrix. Even if your board does not seek new members or new skills, it is likely that you will need to invite climate experts into the room as advisers or observers.
Make climate change an explicit component of your agenda.
Sometimes it can be an independent item for discussion. Sometimes, “climate” or “change” may appear alongside “asset allocation”, “risk assessment” or some other strategic discussion. Alternatively, if relating climate change to everything, seems too overwhelming, zoom in on a single business unit, product line, or asset to make it real.
Include climate change into your governance structures.
Depending on your industry or your bo