Boards and the net zero transition

Our key takeaway: Companies need to rise to the challenge to meet the net zero transition - a challenge which can also turn into an opportunity if met now. Boards of Directors, and non-executive directors (NEDs) within them, play a critical role in this. Boards moving forward will need to be able to provide judgement in a rapidly changing, volatile context. This entails building understanding of why rapid change is needed for the business, and then taking five key steps to enable timely, positive and decisive climate action.

Chapter Zero, the Directors’ Climate Forum; The Berkeley Partnership and The Centre for Climate Engagement published Board Toolkit (July 2022): 

• The potential huge contribution of NEDs: The guide notes that “Non-executive directors (NEDs) have the potential to make a huge contribution in addressing the challenges brought about by climate change, as well as a duty to ensure their boards are fulfilling their legal obligations in this area.” The guide highlights that in addition to NEDs’ fiduciary duty to highlight climate-related opportunities and risks, NEDs have a unique independent perspective that “enables you to play a pivotal role in holding executives to account and helping your boards fulfil their obligations to investors and other stakeholders, by ensuring climate and net zero imperatives are adequately considered and addressed.” The guide calls out the increasing need to provide “necessary judgement for a just and equitable transition.” Specifically, “[w]hen it comes to the challenge of the net zero transition, more than ever, the role of the board will be to provide judgement in a rapidly changing, volatile context. As a NED, you and your boards will need to navigate this complex landscape to provide oversight for the benefit of your businesses and to encourage a just and managed transition. Difficult decisions will need to be made. Staying informed is increasingly important as the landscape changes.” 
• Why meet the challenge of the net zero transition: The guide delves into why climate action is important and urgent. “To survive and thrive, businesses must act decisively and urgently to minimise their climate impact, harness the opportunities of the transition to net zero, and prepare for the risks which will arise through both the transition and the physical effects of climate change.” The guide further notes that “[c]limate change and the transition to a net zero economy are already having significant and hugely disruptive implications for business competitiveness, viability and shareholder value, which are expected to gather pace exponentially. Action is needed, and companies can benefit significantly by taking quick and decisive action. Delayed action could lead to a more costly and difficult transition.” The guide delves into (1) how “[g]reenhouse gas emissions caused by human activity are driving changes to the climate at an unprecedented rate”; (2) [c]limate change has and will have significant negative impacts on health and wellbeing, the economy, and the environment”; and (3) “[t]he climate crisis poses a range of highly disruptive risks that businesses must manage, but the net zero transition has also created opportunities for businesses to gain a competitive advantage.” 
• Five key steps for Boards: The guide proposes that NEDs can help their boards take timely, positive and decisive climate action through five key steps. In steps 1 and 2, “NEDs can play a lead role in initiating and driving the conversation.” Step 1 relates to ensuring the right board oversight and entails asking a range of questions of the board to establish their level of preparedness. Step 2 relates to establishing the need for change, and obtaining a “clear, high-level view of where the company is now versus where it aims to be in future.” This can entail completing a Board Scorecard “to assess where you feel your boards are in terms of leadership and evaluation of climate change strategies.” Through steps 3 to 5, “NEDs can play a key role in ensuring the organisation delivers.” Step 3 entails setting a direction and planning the company’s strategy. The guide provides eleven areas for NEDs to delve into - which includes assessing Scope 3 emissions at the start and only using offsetting to address residual emissions that are unfeasible to eliminate by permanently removing equivalent amounts of CO2. Step 4 relates to embedding and sustaining the change, and the guide provides a checklist for NEDs. Step 5 relates to monitoring and optimising.