Command of the Climate Subject in the Boardroom 

Effective climate governance requires climate fluency—a level of climate knowledge necessary to govern an organization during times of critical transition. Command of the climate subject is one of the World Economic Forum’s guiding principles for effective climate governance, and this article offers guidelines on how to build and maintain board climate fluency.

“The board should ensure that its composition is sufficiently diverse in knowledge, skills, experience, and background to effectively debate and take decisions informed by an awareness and understanding of climate-related threats and opportunities.”

Principle 2, How to Set Up Effective Climate Governance on Corporate Boards
World Economic Forum

Climate Oversight as a Necessary Board Competence

Boards need to be equipped with the necessary insight to guide their organizations through periods of unprecedented change, including an understanding of how the physical and transition effects of climate change impact the organization. While directors do not need to be climate experts per se, the board as a whole, and each member, should have sufficient awareness and understanding of the key drivers and impacts of climate change on their organization’s physical and business ecosystem and overall value creation.

Determining the specific components of directors’ baseline climate competence will vary across industry sectors based on materiality considerations. For example, those within the agricultural sector may need to deepen their understanding of how extreme weather events could impact their crop yields or commodity prices, while those in the retail industry may need to study how climate trends will impact consumer behaviors.

Develop a Structured Approach to Build and Maintain Climate Knowledge

According to a survey conducted by the Wall Street Journal and NACD, building climate insight has been an increasingly common practice across private and public boards, with nearly 60 percent of responding directors either agreeing or strongly agreeing that the board has increased its climate knowledge. While this is a critical step in building effective climate oversight, boards should consider the structure and focus of their education plan to maintain and build climate fluency.

It is important to have a clear and structured approach to assess, develop, and maintain climate competence in the boardroom. Often, the nominating and governance committee is responsible for assessing and overseeing the board’s continuous education, and may be tasked with the process of defining and considering the board’s climate competence. That noted, while the board can establish board-level competencies, directors should also consider their individual climate competence and identify opportunities to bring themselves up to speed as necessary.

A structured approach to build the board’s climate competency can include the following five elements:

1. Define climate competence and necessary knowledge. After identifying a baseline of climate impact on the organization, the board should define which skills, knowledge, and experiences will enable each director to adequately contribute to board-level discussions and oversight decisions involving this baseline. The board may work with the Chief Sustainability Officer to consider the “right” baseline for the organization, and knowledge areas may include overview of systemic climate changes, the evolving regulatory or disclosure landscape, the various metrics and frameworks for climate reporting, and key elements of plans for climate adaption, mitigation, and transition.

2. Develop and sustain a learning plan. Continuous education is needed to ensure the board enhances and maintains climate knowledge. These forward-looking programs should be integrated into the board’s broader educational calendar and include emerging topics tailored to the industry, climate commitments, and/or regulatory requirements impacting the organization. Each organization’s learning needs and approach will be unique, but some common attributes of an effective learning program include:

• focusing on trends affecting the organization’s industry,
• defining relevant topics the board must be conversant in and build the learning plan around these topics,
• establishing the framework and approach to building climate competence,
• allowing space for varying director needs and varying educational formats and resources, and
• allocating time for collective learning to build a cohesive language and fluency across the board.

3. Use external resources as needed Many boards may find it beneficial to engage the services of climate experts outside the organization, such as outside advisors from consulting firms, legal firms, or audit firms. They may also wish to attend off-site seminars to stay up to date on new climate information and governance implications.

4. Evaluate the board’s skill set. Similar to other necessary governance-related skill sets, climate competence should be built into the individual and overall assessment evaluation process. Evaluations should be measured against the skills and experiences the board finds relevant to the organization. The nominating and governance committee typically leads this evaluation process and may rely on practices such as 360° assessments to evaluate board knowledge and identify areas of improvement. This may entail an external provider conducting a biannual evaluation of the CEO and/or senior management team to collect feedback on the board’s climate competence and opportunities for improvement. Key improvement areas can be built into the ongoing and individual education programs.

5. Ensure that the board recruitment process assesses the required level of climate competence of new director candidates. As part of its recruitment process, the board should consider the baseline climate competencies required from new director candidates and identify candidates who can help fill in gaps where needed. New candidates should diversify boardroom perspectives and allow for richer and more dynamic discussions and contributions regarding climate initiatives. If opting to recruit a “climate expert” to join the board, it is important they have “T-shaped” skill sets, meaning they have a deep climate expertise, but also understand how climate can materially affect the company's risks and opportunities in order to create long-term value for the company.

Questions for Boards to Consider

As boards define climate competence within their organization and consider an effective learning plan built around this definition, here are some questions to consider:

• How does the board define climate competence? How does this align to the needs and strategy of the organization?
• How do we determine and assess the key climate competence gaps in the boardroom?
• How is the board ensuring that directors are consistently staying up to speed on necessary climate knowledge? What practices are used to measure this?
• How does the board utilize external and internal resources to enhance their climate knowledge and skills?
• How is climate competence incorporated into the director recruitment process?

This article is part of an  8-part series that provides guidance in applying climate governance principles in the US boardroom. Click here to access the full series and learn more about NACD resources for effective climate governance.