If, as according to Ian Stewart, chief economist at Deloitte, CFO’s believe that climate transition will re-shape the business environment and more than two-thirds expect significant or wholesale change in their own business as a result of the move to net zero, what do CLOs or general counsel think?
Earlier in 2021 DAC Beachcroft and The In-House Lawyer posted the results of a survey to establish how Covid had changed boardroom priorities and how boards were dealing with the crisis. It found that boards had faced up to the unprecedented circumstances and that digital transformation and employee well-being were the highest on the agenda. Digital transformation had previously been a high priority, but employee well-being raced up the agenda charts – from a low starting point to nearly being level with digital transformation.
Early in 2022 we will post the results of our next survey to establish if the priorities for the coming year have changed and to look at climate change in more detail. As senior in-house lawyers with a critical role in helping boards understand the risks of the choices they face, your support in completing this brief survey will be very much appreciated. COP26 will have been held by the time the survey will be issued by The In-House Lawyer, which may inform your answers. Let us hope that ‘1.5 can be kept alive’.
The social responsibility of business has evolved significantly since Friedman’s view on the dominance of profit. The World Economic Forum’s call for boards to act as custodian stewards for profit, people and the planet has been incorporated into investor behaviour. Larry Fink, CEO of BlackRock in his 2021 letter to CEOs, underlined the importance of this thinking in investment decisions: ‘We believe that sustainable investing is the strongest foundation for client portfolios going forward. Capital markets pull risk forward. In the near future and sooner than most anticipate – there will be a significant reallocation of capital.’
Investors see climate change as a foreseen risk (short, medium and long term) and one that has a clear goal and date in mind. As such they want greater transparency and insight into the resilience of the business model. Further changes to reporting to meet these needs will evolve and with it a new language of performance. The journey can be told both in figures and narrative to help all stakeholders understand the transition journey – the cost implications, changes to product mix, to the business model and the impact of possible social and political upheaval.
The response to the pandemic was an imperative. Is the reaction to the business risk that is the climate crisis in the same category? Flexible and agile responses to the changes brought by the pandemic were key to business success. How radical are boards prepared to be in response to climate change to address a wider societal threat? Will the quality of response align with the quality of a business’s value to society? We’ve all heard the message but how in reality is this systemic crisis being approached by the UK’s boardrooms?
In our previous survey environmental and related concerns had increased in significance from 2020 to 2021, but the change in focus was still only slight. The 2015 Paris Agreement, the setting up of the Task Force on Climate Change, the BBC’s influential Blue Planet series and Extinction Rebellion were all evidence of political, regulatory, media and public opinion pushing the change agenda, but other emergencies pushed it down the corporate agenda.
We want to understand if the focus applied to digital transformation and employee well-being is now being applied to net zero carbon targets; about the quality of both the specific strategy and its integration into wider ESG and corporate strategies; who is driving the change and who is responsible for handling the response. If embedding climate risk and opportunity has gone beyond green washing , how deep does it run into the corporate DNA?
Covid created new heroes, both corporate and individual. We need new heroes to emerge very quickly to lead the transition to new forms of energy, new forms of food, new forms of consumer contracts, new materials. Do you have boardroom heroes changing the corporate language and talking about morality? Do you have a board that has social responsibility as its only agenda item?