{"id":1766,"date":"2021-11-11T02:33:22","date_gmt":"2021-11-10T18:33:22","guid":{"rendered":"https:\/\/www.praxonomy.com\/blog\/?p=1766"},"modified":"2021-11-11T11:25:49","modified_gmt":"2021-11-11T03:25:49","slug":"cop26-placing-the-spotlight-on-boards","status":"publish","type":"post","link":"https:\/\/www.praxonomy.com\/blog\/cop26-placing-the-spotlight-on-boards\/","title":{"rendered":"COP26: Placing the Spotlight on Boards"},"content":{"rendered":"\n<p>\u201cCode red for humanity.\u201d<\/p>\n\n\n\n<p>That\u2019s how UN Secretary General Ant\u00f3nio Guterres <a href=\"https:\/\/www.bbc.com\/news\/science-environment-58130705\" target=\"_blank\" rel=\"noreferrer noopener\">described<\/a> the recent climate projections from the Intergovernmental Panel on Climate Change (IPCC).<\/p>\n\n\n\n<p>It, too, is the prevailing sentiment at the 26th Conference of the Parties or COP26, a summit attended by countries that signed the<a href=\"https:\/\/unfccc.int\/\" target=\"_blank\" rel=\"noreferrer noopener\"> United Nations Framework Convention on Climate Change (UNFCCC<\/a>). The UNFCCC signatories agreed to keep temperatures well below 2 (preferably 1.5) degrees Celsius above pre-industrial levels and to secure net-zero carbon emissions by 2050. It\u2019s the global community\u2019s accepted threshold and standard to avoid potentially catastrophic changes to our planet.<\/p>\n\n\n<style>.wp-block-kadence-advancedheading.kt-adv-heading_f3b457-48, .wp-block-kadence-advancedheading.kt-adv-heading_f3b457-48[data-kb-block=\"kb-adv-heading_f3b457-48\"]{font-style:normal;}.wp-block-kadence-advancedheading.kt-adv-heading_f3b457-48 mark, .wp-block-kadence-advancedheading.kt-adv-heading_f3b457-48[data-kb-block=\"kb-adv-heading_f3b457-48\"] mark{font-style:normal;color:#f76a0c;padding-top:0px;padding-right:0px;padding-bottom:0px;padding-left:0px;}<\/style>\n<h2 class=\"kt-adv-heading_f3b457-48 wp-block-kadence-advancedheading\" data-kb-block=\"kb-adv-heading_f3b457-48\"><strong>THE ROLE OF BUSINESS IN THE CRISIS<\/strong><\/h2>\n\n\n\n<p>The role of businesses cannot be overlooked in the environmental global crisis. In large part, corporations have gotten us to where we are.<\/p>\n\n\n\n<p>Governments and global market players are beginning to understand that as well. It has become the catalyst for nations to make <a href=\"https:\/\/www.axios.com\/cop26-pledges-list-country-organization-2c10af98-dc6d-4697-9514-2843e24b2e72.html\" target=\"_blank\" rel=\"noreferrer noopener\">major pledges<\/a> such as the following at COP26:<\/p>\n\n\n\n<ul><li><strong>Over 100 countries representing<\/strong> more than 85% of the world&#8217;s forests<a href=\"https:\/\/www.axios.com\/cop-26-forests-deal-climate-change-deforestation-d92c5622-4b84-4a54-a7fe-e88cfe70488f.html\" target=\"_blank\" rel=\"noreferrer noopener\"> committed to halting and reversing deforestation<\/a> and land degradation by 2030.<\/li><li><strong>105 world leaders signed<\/strong> onto the<a href=\"https:\/\/www.axios.com\/cop26-world-leaders-pledge-methane-emissions-ee3cf5c4-1e41-414e-87f1-6106cba2ecae.html\" target=\"_blank\" rel=\"noreferrer noopener\"> Global Methane Pledge<\/a>, a U.S. and EU joint initiative to<a href=\"https:\/\/www.axios.com\/methane-limits-cop26-legacy-57b0cad6-0beb-4dad-aee6-da8119d01fb0.html\" target=\"_blank\" rel=\"noreferrer noopener\"> cut methane emissions<\/a> by 30% by 2030.<\/li><li><strong>The U.S., U.K., France, Germany and EU<\/strong><a href=\"https:\/\/www.cnn.com\/2021\/11\/02\/africa\/south-africa-cop26-coal-intl-afr\/index.html\" target=\"_blank\" rel=\"noreferrer noopener\"><strong> <\/strong>said they would dedicate<\/a> $8.5 billion to help South Africa decarbonize its coal-heavy energy system.<\/li><li><strong>The U.K. said that at least 23 new countries<\/strong><a href=\"https:\/\/www.gov.uk\/government\/news\/end-of-coal-in-sight-as-uk-secures-ambitious-commitments-at-cop26-summit?utm_source=newsletter&amp;utm_medium=email&amp;utm_campaign=newsletter_axiosgenerate&amp;stream=top\" target=\"_blank\" rel=\"noreferrer noopener\"> joined a commitment<\/a> to phase out and not build or invest in new coal power over the next few decades, bringing the number of signatory countries up to 190.<\/li><li><strong>25 countries have<\/strong><a href=\"https:\/\/ukcop26.org\/statement-on-international-public-support-for-the-clean-energy-transition\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong> joined an effort<\/strong><\/a> that aims to end public financing of overseas oil, gas and coal projects by the end of 2022. Signatories include the U.S., U.K., Denmark, Canada, Italy and the European Investment Bank.<\/li><\/ul>\n\n\n\n<p>There are inherent repercussions to these pronouncements, and the mounting pressure on companies to act is felt the world over. And it is primarily up to the stewards of these organisations \u2014 <strong>the board of directors<\/strong> \u2014 to respond to the calls for quick, meaningful, and impactful change at this critical inflection point.<\/p>\n\n\n\n<p>This article focuses on what the board can do to address this environmental crisis, and dives into how its related decisions ultimately affect the resiliency of the organisation.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>HOW BOARDS CAN DRIVE CHANGE<\/strong><\/h2>\n\n\n\n<p>Collectively, boards of business organisations are in a unique position to effect change. They have the capacity to reorient their organisations to prioritise, or revamp efforts, to address the climate crisis. From incorporating \u201cgreen initiatives\u201d into their own processes (i.e. paperless meetings, <a href=\"http:\/\/www.praxonomy.com\" target=\"_blank\" rel=\"noreferrer noopener\">remote technologies<\/a> to reduce their carbon footprint, etc.) to strategic \u201cclimate governance,\u201d boards drive the narrative for environmental consciousness within their own companies.<\/p>\n\n\n\n<p>Here are some approaches to accomplish this:<\/p>\n\n\n<style>.wp-block-kadence-advancedheading.kt-adv-heading_185be8-ef, .wp-block-kadence-advancedheading.kt-adv-heading_185be8-ef[data-kb-block=\"kb-adv-heading_185be8-ef\"]{font-style:normal;}.wp-block-kadence-advancedheading.kt-adv-heading_185be8-ef mark, .wp-block-kadence-advancedheading.kt-adv-heading_185be8-ef[data-kb-block=\"kb-adv-heading_185be8-ef\"] mark{font-style:normal;color:#f76a0c;padding-top:0px;padding-right:0px;padding-bottom:0px;padding-left:0px;}<\/style>\n<h3 class=\"kt-adv-heading_185be8-ef wp-block-kadence-advancedheading\" data-kb-block=\"kb-adv-heading_185be8-ef\"><strong>1. CONSIDER THE RISK MULTIPLIER OF CLIMATE CHANGE<\/strong><\/h3>\n\n\n\n<p>At its 2019 annual meeting in Davos, the World Economic Forum published guidance on \u201cclimate governance\u201d for corporations.<\/p>\n\n\n\n<p><strong>Climate governance<\/strong> is defined in this<a href=\"https:\/\/home.kpmg\/xx\/en\/home\/insights\/2019\/03\/building-effective-climate-governance.html\" target=\"_blank\" rel=\"noreferrer noopener\"> KPMG article<\/a> as \u201cthe structure of rules and processes a company puts in place to manage its responses to the financial risks and opportunities of climate change.\u201d<\/p>\n\n\n\n<p>It goes on to cite two types of climate-related financial risks for businesses:<\/p>\n\n\n\n<ul><li><strong>Physical risks<\/strong> &#8211; the risk that physical effects of climate change could damage or disrupt the company\u2019s operations and\/or supply chain, resulting in a reduced capacity to operate profitability or impact its sustainability. Examples would be hurricanes, floods, droughts and rising sea levels.&nbsp;<\/li><\/ul>\n\n\n\n<ul><li><strong>Transitional risks<\/strong>&#8211; the risk that the company fails to anticipate and navigate the regulatory and market transformations (such as competitive and investor pressures, changing consumer behaviour) brought about by the global transition to a low-carbon, clean energy economy<strong>.&nbsp;<\/strong><\/li><\/ul>\n\n\n\n<p>The consulting firm Oliver Wyman puts these risks in a <a href=\"https:\/\/www.oliverwyman.com\/content\/dam\/oliver-wyman\/v2\/publications\/2020\/october\/NACD_Climate_Resilience_Compendium_Final.pdf\" target=\"_blank\" rel=\"noreferrer noopener\">real-world context<\/a>:<\/p>\n\n\n\n<p>\u201cAssets may be destroyed and loss of power and damage to transportation infrastructure can interrupt business operations. Even if companies emerge relatively unscathed, they can still be vulnerable to downturns in the local economy.\u201d\u00a0<\/p>\n\n\n\n<p>Looking at it through the lens of a risk model, it becomes apparent that climate change risks are not all that different from traditional risks that companies face. To dismiss or frame it merely as another \u201ccorporate social responsibility campaign\u201d can potentially be a failure of corporate governance.&nbsp;<\/p>\n\n\n\n<p>It therefore makes a case for a rightful place in the board meeting agenda.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><strong>2. MAKE IT PART OF THE AGENDA<\/strong><\/h3>\n\n\n\n<p>The importance placed on climate change risk by boards becomes concretised and evident only if it is included in the board\u2019s meeting agenda.<\/p>\n\n\n\n<p>Only 45% of directors in<a href=\"https:\/\/www.pwc.com\/us\/en\/services\/governance-insights-center\/blog\/boards-role-climate-risk.html\" target=\"_blank\" rel=\"noreferrer noopener\"> PwC\u2019s 2021 Annual Corporate Directors Survey<\/a> said that ESG (Environmental, Social, and Governance) topics were a regular item on the board\u2019s agenda. It serves to highlight that most boards do not give climate risk the attention it deserves.<\/p>\n\n\n\n<p>By engaging with COP26 and placing business sustainability and environmental impacts on the agenda, it gives the board ample time to focus and evaluate the organisation\u2019s position to confront the challenges that climate change presents.<\/p>\n\n\n\n<p>With its inclusion in the agenda, boards obtain a panoramic perspective to address the issue.&nbsp;<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Reporting<\/strong><\/h4>\n\n\n\n<p>Although ESG reporting standards have yet to be clearly established and widely adopted, reporting on climate change risks faced by the company can already be assigned as a topic to one of the committees. This may make it easier to focus on issues such as overseeing and monitoring climate risk disclosures, as well as engaging with investors and stakeholders for transparency.<\/p>\n\n\n\n<p>Climate change risk reporting provides boards the opportunity to have a clear message on sustainability risks and opportunities and explain how these align with strategic business value.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><strong>Strategic Planning<\/strong><\/h4>\n\n\n\n<p>This <a href=\"https:\/\/www.reutersevents.com\/sustainability\/five-reasons-why-business-should-care-about-cop26\" target=\"_blank\" rel=\"noreferrer noopener\">article<\/a> states that the impact of COP26 will trickle down to the following areas:<\/p>\n\n\n\n<ol><li>Consumer behaviour and business revenues<ul><li>Businesses have an opportunity to position and differentiate themselves&nbsp;<\/li><li><a href=\"https:\/\/www.ey.com\/en_gl\/consumer-products-retail\/future-consumer-index-keep-up-changing-consumer\" target=\"_blank\" rel=\"noreferrer noopener\">Trends <\/a>show that consumers will be willing to pay a premium for sustainable products and services post COVID-19<\/li><li>Sustainable consumption will be important<\/li><\/ul><\/li><\/ol>\n\n\n\n<ol start=\"2\"><li>Innovation and new business models<ul><li>The falling cost of green capital investments and the increasing price of carbon emissions will create new opportunities<\/li><li>This can lead to the creation of new environmentally-friendly products and services \u2014 or entirely new business models.<\/li><li>For example: the use of alternatives to concrete such as building materials that use waste glass, plastic, or paper<\/li><\/ul><\/li><\/ol>\n\n\n\n<p>By including reporting and planning efforts in the meeting agenda, directors are able to provide substance and structure to climate change risk discussions.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>3. EVALUATE BOARD COMPETENCIES AND COMMIT TO EDUCATION<\/strong><\/h2>\n\n\n\n<p>But to fully understand the climate risk implications, boards must have the tools, education, and skillsets to make the best decisions on the issues it brings forth.<\/p>\n\n\n\n<p>In the same PwC 2021 Annual Corporate Directors\u2019 Survey, only 51% of directors say their boards have a strong understanding of how ESG issues like climate change impact the company. And perhaps more alarming, less than half of c-suite executives (47%) <a href=\"https:\/\/www.pwc.com\/us\/en\/services\/governance-insights-center\/library\/board-effectiveness-and-performance-improvement.html\" target=\"_blank\" rel=\"noreferrer noopener\">polled <\/a>in 2020 believe their directors have a good grasp of the subject.<\/p>\n\n\n\n<p>In order to maintain their competency to protect shareholder interests and provide appropriate oversight, this <a href=\"https:\/\/blog.nacdonline.org\/posts\/building-climate-smart-boards\" target=\"_blank\" rel=\"noreferrer noopener\">NACD article<\/a> encourages boards to be \u201copen learning systems, not closed systems relying on their eminence and their historical experience of markets that have changed so much from how they functioned before&#8230;.\u201d&nbsp;<\/p>\n\n\n\n<p>Climate change risks and issues may be unfamiliar, nor part of the job description for non-executive directors (NEDs) when they were executives. This can potentially render the board lacking in their competency to judge and decide on these matters.<\/p>\n\n\n\n<p>Boards (and Chairs) can close the competency gap by:<\/p>\n\n\n\n<ol><li>Ensuring ongoing education for the board to establish a baseline understanding and language around the issue<ul><li>The <a href=\"https:\/\/www2.deloitte.com\/global\/en\/pages\/about-deloitte\/press-releases\/deloitte-launches-climate-learning-program-to-empower-all-three-hundred-and-thirty-thousand-people-to-take-action.html\" target=\"_blank\" rel=\"noreferrer noopener\">climate learning program<\/a> of Deloitte is a great example of this<\/li><li>Initiatives such as these should help directors ask management the right questions about its sustainability efforts and report on it clearly<\/li><\/ul><\/li><\/ol>\n\n\n\n<ol start=\"2\"><li>Engaging with experts when needed to increase the chances of \u201cinformed oversight\u201d<\/li><\/ol>\n\n\n\n<ol start=\"3\"><li>Establishing a meeting environment that encourages directors to ask questions<\/li><\/ol>\n\n\n\n<p>While directors don\u2019t have to be climate-change experts, they are expected to have a foundational knowledge of the subject and an acute understanding of its consequences to the company.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>WHY ACT NOW?<\/strong><\/h2>\n\n\n\n<p>Most boards adopt a \u201cwait and see\u201d attitude.<\/p>\n\n\n\n<p>It&#8217;s easy to understand why. It&#8217;s difficult to adopt long-term thinking when short-term pressures for immediate positive results abound.<\/p>\n\n\n\n<p>But those who act now to address climate change risks and consider sustainability into all aspects of their company\u2019s operations will be in the best position to meet investor and stakeholder demands, as well as rise above competition in the emerging green global economy.<\/p>\n\n\n\n<p>Understanding its implications is vital. Mitigating risks while reversing damage are key.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>CONCLUSION<\/strong><\/h2>\n\n\n\n<p>The pressing concerns and climate change issues presented at COP26 are here to stay. In fact, the hope is that they garner more attention and traction after the summit.&nbsp;<\/p>\n\n\n\n<p>Many companies are at an inflection point in their understanding of what it means to deliver value. Or at least they should be. It\u2019s slowly being defined to be at the pocket where environmental, societal, and governance issues intersect with business profitability and sustainable growth. Boards who still believe that these are two mutually exclusive concepts will fall considerably behind.&nbsp;<\/p>\n\n\n\n<p>Never has there been a more opportune time for boards and companies to operate with a social conscience. It&#8217;s a unique position to be in. Boards have greater permission to shift and shape the important conversation on collective leadership and purpose \u2014 and redefine what those might look like in these critical times.<\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>COP26 brings to light the climate change crisis and the role companies can play to stop or reverse it. Find out how leaders \u2014 the board, in particular \u2014 can effect change, drive sustainability, and govern with a social conscience.<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":2,"featured_media":1778,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[5],"tags":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v21.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>COP26: Placing the Spotlight on Boards - Praxonomy<\/title>\n<meta name=\"description\" content=\"COP26 highlights the role of countries and companies in the climate change crisis. 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