Getting Climate Smart in a Changing Environment

In brief: Investors are increasingly focused on environmental, social, and governance issues—particularly climate change. Given that boards are fiduciaries to their companies and shareholders, it follows that directors should pay close attention to the evolution of the risks and opportunities related to climate change. This brief aims to help boards do just that. Developed by Ceres and originally appearing in the 2019 Governance Outlook: Projections on Emerging Board Matters, it explores key trends that corporate boards should keep in mind when overseeing the implications of climate change for their businesses, as well as the effects of these trends on board responsibilities.

This resource can help your board to

• discuss the material impact of climate change on your business or industry;

• integrate the risks and opportunities of climate change into corporate strategy;

• consider the viewpoints of critical stakeholders, including the investor community, on climate-related risks and opportunities; and

• evaluate its governance structure for climate-change oversight.

Most relevant audiences: audit and risk committee members, board chairs, lead independent directors, CEOs

1. Introduction

Investors and boards consider environmental, social, and governance (ESG) issues—particularly climate change—in remarkably dissonant ways.

On one hand, investors are more focused than ever on climate change. In 2015, Mark Carney, the governor of the Bank of England and head of the G-20’s Financial Stability Board, declared that climate change poses financial risk that threatens the very stability of global financial markets. Nearly 400 investors representing $32 trillion in assets have called on companies to provide disclosure on climate change to help assess this risk. In the last two proxy seasons major asset owners (including BlackRock and Vanguard) helped deliver historic majority votes in shareholder proposals at fossil fuel majors (including Exxon, Occidental Petroleum, and Kinder Morgan), calling on the companies to conduct analyses to understand the impact of climate-change risk on their business.

On the other hand, this message does not seem to be getting through to the majority of corporate boards. In the 2018–2019 NACD Public Company Governance Survey, NACD found that when directors responding to the survey were asked to choose what top trends they foresee having the greatest effect on their company in the next 12 months, only 6 percent selected climate change as a top-five trend for 2019—unchanged from last year’s results.

Given that corporate boards are fiduciaries to their companies and their shareholders, it follows that boards should pay attention to the evolution of climate-change risks and opportunities. Being proactive in this way would allow for thoughtful decision making that avoids crises, rather than decision making that reacts to them.