Boards must ACT NOW, enabled by Climate Governance Principles

by Liselotte Engstam, Chair Boards Impact Forum & Professional NED

A landmark report released by the UN on August 9 is a code red for humanity of the world, and societies and businesses need to act fast. 

UN’s Intergovernmental Panel on Climate Change (IPCC), a group of scientists whose findings are endorsed by the world’s governments, released its latest report, “Climate Change 2021. The Physical Science Basis”^[1] that warns of increasingly extreme heatwaves, droughts, and flooding, and a critical temperature limit being broken in just over a decade.  According to UN, the report is a code red for humanity, but scientists say a catastrophe can be avoided if the world acts fast. 

The report summarizes some disturbing facts and still some hope 

• Temperatures are rising more quickly than we thought
• Increased CO2 will have dire long-term effects
• There is still time to act – if we act NOW

The challenge requires urgent private-public cooperation. To limit the worst consequences, we must aim for net-zero as soon as possible with majority of rapid, short-term decarbonization efforts this decade until 2030, and fully done by 2050 latest.   

The boards and companies in the Nordic region have a unique opportunity to contribute to both a livable world and their company’s growth and sustainability impact.

Some Nordic companies are underway with ambitious sustainable transformations already achieved. Corporate Knights rank the top 100 companies in sustainability^[2] in the world, and 14 of them comes from the Nordic’s: Örsted (DK), Vestas Wind Systems (DK), Chr Hansen Holding (DK), Novozymes (Dk), Novo Nordisk (DK), Neste (FI), Metso Oututec (FI), UPM-Kymmene (FI), Nordea bank (FI), Kesko (FI), Storebrand (NO), Orkla (NO), essity (SE), Ericsson (SE). 

We are proud at Boards Impact Forum to have board members from several of these companies that have joined us at our Strategic Advisory Board and as members. 

 

However, many boards have yet to start their discussion and guidance of the companies on their sustainability journey, as we have found in a recent research done in collaboration with Professor Mats Magnusson Royal Institute of Technology Sweden and Professor Ludo Van der Heyden INSEAD, with input also from Boards Impact Forums members and INSEAD Directors Network members. From the survey, we identified in the initial findings that 44 % of boards have not yet integrated sustainability into their business strategy, and 60% of boards have not yet discussed how to engage in and consider sustainability and which committees or board meetings should focus what areas.  We can see that boards risk being blockers to the needed transformation. 

The Nordic countries have good worldwide ranking positions of the Sustainable Development Goals, claiming the position 1 – Finland, 2 – Sweden, 3 – Denmark, 7 – Norway and 29 – Iceland as found in the “2021 Sustainable Development Report”^[3]. But as the recent IPCC report points out, we still have to improve and do more. 

Another newly released informative report, “The Nordic Region and the 2030 Agenda”^[4] outline the progress of Nordic countries towards the UN Sustainability Development Goals^[5]. The report identifies that the goals in most needs of substantial improvement in Nordics are SDG 12 (Responsible Consumption and Production) and SDG 13 (Climate Action), where UN has also identified the need for developing countries to take the lead. The following SDG goals in need to improve in Nordics include SDG 4 Quality Education, SDG 9 Industry, Innovation and Infrastructure, and SDG 17 Partnerships for Goals.

The report is authored by Norden^[6], an organization facilitating cooperation between the Nordic countries and holds the Vision that “Nordic region will become the most sustainable and integrated region in the world in 2030”^[7].  

For the Nordic region to reach the ambitious goals to become the most sustainable and integrated region in the world in 2030, the next wave of improvements will have to come from corporates and their boards that guide their company’s transition and transformation. 

World Economic Forum^[8]’ has shared eight Climate Governance Principles^[9] which aims to support boards on their journey to better guide companies on their climate governance. 

The principles are

1. Climate accountability on boards
2. Command of the subject
3. Board structure
4. Material risk and opportunity assessment 
5. Strategic integration 
6. Incentivization
7. Reporting and disclosure
8. Exchange 

As the research referred to earlier has shown us, many boards have yet to initiate their discussion and guidance of the companies on their sustainability journey. The three first principles help boards in assessing their situation and getting into action:

Principle 1 – Climate accountability on boards 

The board is ultimately accountable to shareholders for the long-term stewardship of the company. Accordingly, the board should be responsible for the company’s long-term resilience with respect to potential shifts in the business landscape that may result from climate change.  Six questions help boards, of which two examples are 

1. Do your board directors consider the risks and opportunities associated with climate change to be an integral part of their accountability for the long-term stewardship of the organization? 
2. Do your directors feel confident in their abilities to explain their decisions as informed by the best available information on climate risks and opportunities? 

Principle 2 – Command of the (climate) subject 

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.  Seven questions help boards, of which two examples are 

1. To what extent does your board have a robust awareness and understanding of how climate change may affect the company? 
2. 6. Has your board considered whether it would benefit from the advice of external experts? If so, has the board considered which experts would be most well suited? 

Principle 3 – Board structure 

As the stewards for long-term performance and resilience, the board should determine the most effective way to integrate climate considerations into its structure and committees. Five questions help boards, of which two examples are 

1. How does your board ensure that climate considerations are given sufficient attention across the board (e.g. being discussed in the audit, risk, nomination or remuneration committees)? 
2. Has the way your board embedded climate allow for effective interaction with relevant members of the executive management (e.g. if the climate is embedded in the risk committee, does this committee ensure that the Chief Risk Officer also addresses environment)? 

Boards Impact Forum^[10], the Nordic Chapter of Climate Governance Initiative in collaboration with World Economic Forum, aims to enable better corporate climate and sustainability governance by inspiring, educating, connecting, and engaging board members in Nordic countries and internationally. We share insights together with our partners via webinars, peer exchanges, events, research, and information sharing, and collaborates with the other country and regional chapters of the Climate Governance Initiative.  

We welcome all responsible board members to become members at Boards Impact Forum, and we invite Partners to support our important initiative, learn more here . 

Join our next webinar on August 26 on the topic of “Competence for Strategi Sustainable Business” with some top-level board members and academics as NED Lise Kingo, Chair & NED Arne Karlsson and Professor & NED Mette Morsing. Read more and sign up here

Follow our upcoming events here , and revisit some earlier events here 

The importance of managing the sustainability agenda and the climate issue by boards is increasing. Boards Impact Forum, the Nordic chapter of the Word Economic Forum’s Climate Governance Initiative (CGI), has been established to provide more insights. The Boards Impact Forum purpose is to engage board members in the Nordic region and internationally, to accelerate climate action and innovation for more sustainable business and a sustainable world.  More information about Boards Impact Forum can be found here: https://boardsimpactforum.com/

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^[1] IPCC, Climate Change 2021. The Physical Science Basis, 2021 <https://www.ipcc.ch/report/sixth-assessment-report-working-group-i/>.

^[2] Corporate Knights Top 100 Global 2021 <https://www.corporateknights.com/reports/2021-global-100/2021-global-100-ranking-16115328/>.

^[3] 2021 Sustainable Development Report <https://www.sdgindex.org/reports/sustainable-development-report-2021/ >.

^[4] Norden, The Nordic Region and the 2030 Agenda, 2021 <https://www.norden.org/en/publication/nordic-region-and-2030-agenda>.

^[5] UN, ‘UN Sustainability Development Goals’ <https://sdgs.un.org/goals>.

^[6] Norden, ‘Norden’ <https://www.norden.org/en>.

^[7] Norden, ‘Norden Vision 2030’ <https://www.norden.org/en/our-vision-2030>.

^[8] ‘World Economic Forum’ <https://www.weforum.org>.

^[9] WEF Climate Governance Principles <http://www3.weforum.org/docs/WEF_Creating_effective_climate_governance_on_corporate_boards.pdf>.

^[10] ‘Boards Impact Forum’ <https://boardsimpactforum.com>.