Getting businesses ready to face the future does not just mean preparing for the big shifts of today – from AI and digitalisation to labour shortages and a reduced global openness to trade: what The Economist recently dubbed “homeland economics”. It also means positioning to respond to climate change. Chairs – with their abilities to convene, to support, and to strategise – have a key role to play here, not least in ensuring their boards are climate ready.
There is no getting around the science. And for business, action on the climate is not a “nice to have” but a necessity. This is not just the case legally – with the tightened Corporate Sustainability Reporting Directive (CSRD) rolling out at the EU level from January onwards. It also applies in terms of core business fundamentals. The changing climate changes the facts on the ground – from shifts in the marketplace to increased stakeholder expectations.
And it is particularly in terms of these changes amongst stakeholders across the wider corporate ecosystem where Chairs can play a decisive role. A key challenge, but also opportunity, for Chairs comes in using their roles and their voices to, for example, help investors understand that climate investment creates value, or help ensure strategies and initiatives underpin purpose and values that align with employees. As Deloitte’s Gen Z and Millennial and Survey shows, this is of critical importance, particularly amongst younger generations entering the labour market.
So – Chairs can use their position to help set the tone at the top. And we should not forget – they also have an obligation to take charge here and push the envelope. But what does that mean strategically?
Simply putting “climate on the agenda” is not enough. A strategic view might, instead, delve into how climate change can engender more far-reaching business change.
A lot of this is not reinventing the wheel, but it requires thought, action, and commitment. As with so many challenges at this level, a strong relationship of trust between the Chair and the CEO underpins everything. With that said, I want to stress that best practice is not one-size-fits-all. Copying and pasting the committees or responsibilities used in one firm or sector may not be appropriate in another – Chairs need to be across this landscape, constantly horizon-scanning for appropriate best practice. In my view, this diversity is in fact an opportunity: with our innovative mix of cooperative, listed, and family-owned companies, we in Denmark have a chance to become front-runners here.
In terms of measurement, we are seeing rapid movement – all of the ten largest companies on the Nasdaq Copenhagen have integrated ESG metrics into their Executive KPIs, and nine of this ten explicitly include ESG/Sustainability in their Board competency matrices. Chairs need to be on top of both what is measured – the metrics and KPIs – and what is not being measured – with a recognition that, when it comes to climate, first-mover advantage is not to be underestimated.
There is a case here, too, when taking the strategic view, to look at how a risk management and business-readiness approach might usefully be used to trigger reshaping the future business. Changing stakeholder and shareholder views and expectations certainly call for more proactive, forward-looking board oversight of climate actions.
As noted previously, from 1 January 2024, CSRD reporting will become the norm for a larger number of businesses, as part of the European Green Deal. Again – this could be seen as both challenge and opportunity. Ensuring firms are ready needs to be top of mind for chairs. At the same time, CSRD may go some way to addressing a problem faced by a number of boards – the lack of a consistent, widely applicable, and comparable climate change reporting framework. Flagged up in previous Deloitte research on board level issues relating to climate change, 60% of respondents said the lack of common global reporting standards was their biggest challenge when it comes to overseeing climate change vis a vis the external environment.
And, as ever, a tight relationship at the top is key for building trust and bringing about change. You can’t do the latter without the former. The Chair-CEO relationship is important for all high-level transformations – and doubly so when it comes to something as challenging as the climate transition. In a recent Deloitte survey, 61% of surveyed board members said that the whole board is responsible for sustainability and climate action and 70% find that the CEO owns the climate agenda in the executive team. The role of the chair is to challenge and support; to cajole and encourage – commitment is key, as is ensuring the right environment exists to make the change.
The clock is ticking. From deadly floods in Libya and Pakistan, to wildfires in Greece and dramatic Antarctic ice shelf loss, the climate crisis is not an abstract future – it is staring us in the face. And this is changing expectations rapidly and decisively. The world’s biggest investment fund – Norway’s sovereign wealth fund – recently warned directors that it would veto their re-election to boards if they failed to up their game on the climate.
The buck stops at the board – the role of the Chair is key in navigating the climate transition.
When we consider all these changes – taking place at rapid pace – the moment is truly upon us. Eight years on from the Paris accords, the challenges facing us could not be clearer. For Chairs, this means setting the standard and defining a world-class framework for the climate ready board. The climate will not wait. So neither can we. And, despite the challenges involved, making this change is not just an obligation for Chairs but ultimately a transformative business opportunity – and one to be seized.
Forfatter spotlight
Michael Vad
Michael comes with more than 20 years of experience as a board Advisory Partner and has specialised in board evaluation and board advisory having worked with both Danish and global companies, also on individual competence mapping and board culture assessments. Spørg mig om: Bestyrelses- og topledelsesrådgivning Michael Vad har i to årtier arbejdet med international bestyrelses- og topledelsesrådgivning for børsnoterede, familie- og kapitalfondsejede selskaber. Hos Deloitte leder Michael vores nordiske Board & Executive advisory-forretning med fokus på bestyrelsesrådgivning, CEO succession og talent management.