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Home Business Insights

ESG: Knowledge and experience gaps impact boards’ ability to address climate change

FutureCFO Editors by FutureCFO Editors
January 6, 2022
climate change

Image by Melissa Bradley on Unsplash

Knowledge and experience gaps impact boards’ ability to address climate change, said INSEAD recently when releasing its new report Changing the Climate in the Boardroom.

The report — by the business school and executive search firm Heidrick & Struggles —  is based on a survey of 301 board members in 43 countries, according to INSEAD.

Report highlights

  • 75% of boards believe climate change is very, or entirely important, to the strategic success of their companies, with 72% reporting confidence that their company will reach its climate change goals.
  • 50% of all board members expressed concerns with the level of reporting they receive on climate change progress.
  • 69% said climate change knowledge is not a formal requirement for joining their board, and climate change knowledge is not included in their board’s competency matrix.
  • 65% said that knowledge of climate change is not a formal requirement in CEO selection.
  • 74% of boards do not prioritise climate change in executive performance metrics. 

Talent paradox
The data revealed a talent paradox: the best leaders on climate change often do not have board experience, and those with skills to navigate board dynamics often lack true understanding of climate change, INSEAD pointed out. 

As companies continue to evolve their ESG efforts – marked by real shifts in priorities in this pandemic era – boards whose primary focus is enforcing good corporate governance must lead on climate change, said Louis Besland, Partner in Heidrick & Struggles’ London and Paris offices and a member of the Industrial and CEO & Board of Directors practices.

Regulatory and other pressures are converging to influence access to capital, as insurers, investors and lenders are increasingly requiring ESG disclosure that mirrors financial reporting to secure funding, he added. 

Corporate governance related to climate change
Most companies have implemented the basic tenets of good corporate governance related to climate change, INSEAD noted.

More than 80% of companies have someone that is responsible for reporting on climate change to the board, according to the report. 

But the scope of emissions targets are limited: only 16% reported their companies have targets for carbon emissions beyond their control (including their suppliers’ and end users’ emissions), the organisation added.

Practical measures
The report also includes several practical measures boards can take to ensure companies are ready to meet the growing demands of stakeholders:

• Consider adding more climate change voices with relevant expertise to the boardroom.

• Create board chair accountability on the processes and dynamics that support advancing climate change as, increasingly, companies that lack the ability to prove ESG metrics or meet stated goals may find they have limited access to capital in the future. 

• Anchor climate change strategy in social and organisational purpose, and connect it to specific operations.

• Integrate climate change objectives into executive compensation and search strategies, especially for the CEO.

• Build climate-related disclosures with the same rigour required of financial disclosures.

Related:  Companies failing to act on ESG issues risk losing investors
Tags: climate changeESG
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