The Climate in the Boardroom – A Council for Board Diversity partner event @ Ecosperity Week 2024

The panel illuminated the pressing need for companies to address climate risk comprehensively, including governance structures and challenges within the supply chains. This is an edited excerpt:

Climate Risk: A Present Reality

Mindy Lubber: “I was doing a board training at one of the largest US based global fashion companies, and truly, within two hours of that meeting, they found out 15-20% of their cotton crop had died. That was a 2% share hit, value hit to the bottom line. So these aren’t esoteric, they’re real risks. If you are a company with a supply chain that may face labour or water problems, these issues have to be factored in at the board level because it is enough of a risk.

If doesn’t matter anymore whether you’re in Bangladesh or you’re in Boston, there is almost no sector unharmed by the ravages of climate change and what it can do to your company and supply chain.”

Making the Transition

Loh Boon Chye: “If I look at our listed companies, we have seen tremendous improvement [in climate oversight] from when we first started sustainability reporting seven years back, based on our last study conducted by SGX RegCo and the NUS Business School. You can say that’s expected for some of the high carbon emission sectors, but I think there are still gaps to be closed in sectors like healthcare and utilities.

In my interactions with companies, not just those that are listed, I would call out three areas that are top of mind for many directors when it comes to climate transition and net zero: One, setting a climate agenda and balancing long-term targets with the short-term. Two, concern over greenwashing and the evolving roles of directors. And three, balancing risk with revenue opportunities. 

Climate Action Plan

Mindy Lubber: “It cannot be that only the major cities where corporations are centred are looking at climate risk. We’ve got to look at the whole picture. Overall, our expectations are that management is making sure that they are disclosing the right information on climate risk; I would argue, broadly defined and as far into scope 3 as they can reasonably get. Secondly, that management is putting in place a climate action plan to meet the goals of the Paris Alignment, the goals of the country they’re operating in, and the goals of their company.

We hear a lot of companies say we’re going to get to net zero by 2050, or we’re going to get halfway there by 2030. Words are words, deeds are deeds. We now expect companies to put in place a climate action plan that is about today and tomorrow. It’s about what are your goals for 2025 and 2027 and 2030, and how are you going to meet them? If you don’t start now, it doesn’t happen. The role of the board is to make sure those things are being put into place.”

The Climate in the Boardroom

Mindy Lubber: There needs to be people at the board level who have some expertise. I don’t mean one green board member who has green credentials. The expertise needs to be across the enterprise and across the board. You don’t want to isolate one person. The board needs to be educated. At the board level, there needs to be one or two [with green expertise], and probably one major sustainability goal. I would argue that the CEO’s compensation ought to be tied to that as a key metric. Then the management needs to present to the board how they are meeting those goals – short, medium, and long term – what kind of management systems are put into place, how much disclosure and transparency there is, and what they’re telling their investors.”

Indexes & Climate Reporting Requirements

Loh Boon Chye: “SGX is very involved in working with index providers to come up with benchmarks that incorporate climate considerations for investors. And that can be a boon or a bane for companies. If you are seen to be progressive with carbon and climate transition, you may potentially attract more capital from passive investors. And if you are behind, you could see investors leaving your company. Let’s not forget that one-third of global equity capital markets today are passive capital that tracks indexes and ETFs.

[The challenge companies face in climate reporting] is data availability, and more importantly, how to put those data into a standardised format for comparison. We introduced climate reporting recently based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. And I think for board directors, there is clearly an acceptance globally that the International Sustainability Standards Board Framework will be adopted over time. It may be obviously adjusted to fit each jurisdiction. And I think it’s important to try and understand that and how to implement that.

And we ourselves have also created an online data platform to help our listed companies to populate 27 metrics that investors have told us that this is what they care about and trying to have that compared across international standards so that investors can make informed decisions.”

Board Diversity Enhances Board Strategy and Solutions 

Mindy Lubber: “For a company that is global or small, if their board doesn’t represent the world around them, they are not getting the diversity of thought and leadership that they need. The data is strong that companies that have more diverse boards thrive. Companies with diversity at board level have a deeper breadth of [knowledge] on certain issues. Times are changing quickly, and we’ve seen boards change significantly. I will tell you the pension funds and asset owners that are members of ours, they are looking to see that boards are varied and diverse, and no longer of one mind. That’s their expectation when they meet with portfolio companies these days, whether it’s in the United States or here.”