Biden And The Boardroom: Turning Up The Temperature On Climate Change
Forbes
Michael Peregrine
For those corporate boards that haven’t been paying much attention to climate change, now might be a good time to start reconsidering that position. For on Earth Day 2021 two separate but major initiatives were announced that are likely to increase the pressure on boards to recognize climate as a significant enterprise risk and to more closely monitor management’s engagement on climate matters.
First, and
most prominent, was President Biden’s commitment that the United States would reduce its greenhouse gas emissions
by at least 50% by the end of the decade. Made in a two-day summit focusing on
the U.S. return to the Paris climate accord, Mr. Biden described the challenge
of avoiding catastrophic warming as “a moral imperative, an economic
imperative...but also a moment of extraordinary possibilities”.
There’s a
general recognition that achievement of the Biden goals will require significant change to current domestic policies, and will reconfigure major sectors
of the current U.S. economy, from energy to transportation. It’s the type of
major governmental commitment that requires serious board-level consideration
of its potential implications to the company.
And while
the ultimate impact of the Biden commitment on individual industries is
unclear, the economic imperative appears more clear. Indeed, there are
indications that commercial leaders may be ready to support the basic goals.
For
example, in advance of the President’s announcement over 400 executives from
some of the nation’s largest companies signed an open letter encouraging the Administration to take aggressive efforts to
reduce global warming emissions. And there’s also the important Climate Action 100+ report that identifies as record-setting the 22 climate related
U.S. weather disasters in 2020, each causing over $1 billion in damages. The report
also notes that for the current proxy season to date, over 135 climate-related
shareholder proposals have been submitted. Even the most
environmentally-recalcitrant boards will find it tough to ignore these
developments.
But more
directly relevant to the orientation of most corporate boards is the Earth
Day announcement of the National Association of Corporate Directors (“NACD”)’s
membership in the Climate Governance Initiative, a global project established by the World Economic Forum. The
Initiative is designed to enhance climate awareness amongst directors and help
boards guide their businesses in the difficult transition to a net zero
economy. This collaboration reflects a conscious decision by NACD to firmly
emphasize the board’s role with respect to climate change; i.e., as a
strategic, long-term matter requiring board attention consistent with that of
other emerging risks such as cybersecurity.
Characterizing
it as a significant enterprise risk, NACD views directors as having a fiduciary
duty to be informed on, and to encourage their board to determine, the
company’s risk profile for climate. As envisioned by NACD, this duty would call
upon boards to (i) gain climate awareness and skills; (ii) embed climate
considerations into board decision making: and (iii) understand and act upon
the risks and opportunities that the climate emergency poses to the long-term
resilience and business success of their companies.
It’s a
characterization that makes sense, especially considering what NACD leadership
describes as the potential for increased pressure on boards from policymakers
and investors to more aggressively address climate change initiatives within
strategic planning efforts. Clearly, this has been the view of major asset
managers such as Blackrock. And, as has been seen of late with respect to
matters of social justice and similar issues, companies are paying greater
attention to what they interpret as stakeholder preferences—especially those of
their consumers and the workforce.
In that
context, enhanced board engagement is perhaps best viewed as the logical next
step in the evolution of climate governance, rather than as an exercise of woke
CEO activism or brazen corporate efforts to ward off federal legislation and
regulation.
It
suggests a shift from viewing climate change as a peripheral ethical concern to
that of a major enterprise risk with serious implications for board duties and
corporate disclosure responsibilities. Or, to paraphrase NACD CEO Peter
Gleason, climate is no longer a “bolt on” agenda item or something only to be
discussed at the board committee level. Rather, it should be grounded in the
most serious of board-management dialogues.
And so
this was a pretty significant Earth Day, from a climate governance perspective.
First with respect to a Presidential climate change commitment, the
implications of which most American businesses and their boards will need to
consider. Second with respect to the formal recognition of a leading corporate
governance organization that indeed, the oversight of climate risk is a board
responsibility. And one doesn’t need to be an environmental activist to
recognize their immediate impact on the board.
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