An approach for non-executive directors
By Paola Daza, Researcher in Organisational Change
Corporate climate action is increasingly regarded as critical for the future success of organisations. However, the actions taken by most organisations fall short in genuinely changing how their behaviours and activities impact the environment. A shift in thinking is necessary in order to move beyond stagnation and to accelerate effective climate action at the organisational level.
As a practitioner, I have come to realise that to embed a new way of doing things, organisations must aim to effectuate significant changes. These changes go beyond simply introducing a new way of reporting, adopting new technology or introducing a new manager; they must be the orchestrated result of a genuine desire for transformation and a commitment to sustain the changes.
To increase an organisation’s effectiveness in addressing the challenges of climate change, it is crucial that leaders, especially those whose decisions shape the strategy of the organisation, don’t only prioritise complying with regulatory requirements. Proactivity is needed to drive change through impactful initiatives that can enable an organisation to become a leader in climate action.
Non-executive directors and organisational change
During my time at the Centre for Climate Engagement, I have been working to identify a framework that would guide non-executive directors (NEDs) in the process of embedding sustainability and climate action from an organisational change perspective. Even though there is no generic recipe that would work for all organisations, due to significant differences between them, I have identified some factors as critical for the success of change initiatives drawing on a review of academic literature 1,2.
Organisational change is an important area for NEDs to address as it is vital for the successful and sustained implementation of climate action and the creation of long-term value for the organisation. This is also key since regulatory responsibilities and investor demands on sustainability and climate action are constantly increasing, and NEDs are expected to be ready to address these issues as they guide their businesses into the future.
NEDs, as strategic leaders, will need to make sure that the strategies put in place to address climate action are coherent, with a clear implementation plan, and also align with the capabilities of the organisation. The appropriate climate-compatible strategies probably won’t be found within the traditional practices of the organisation. In order to embed a climate action mindset and create a sustainable environment, NEDs will need to welcome new thinking, shifts in attitudes, and changes in the way their organisation and employees behave.
Leadership is a critical factor that influences sustainable climate-related action within organisations. To drive change, leaders need to be willing and able to find, understand and implement new strategies; management must be visible; and genuine support and commitment must be demonstrated. These are characteristics board members must exhibit themselves and expect from the executive team.3
Key factors to drive change from board level
Bridge the knowledge gap
Non-executive directors must assess their own effectiveness in corporate climate action. This involves gauging their existing knowledge and identifying knowledge gaps, in order to understand the specific implications of climate change for the organisation, and what is required by the board to perform effective oversight. Boards with a high level of environmental expertise are more likely to comply effectively with sustainability and climate requirements.4 So, if there is not yet an expert on the board guiding the corporate strategy on this topic, current board members should decide whether the help they need should come from external advisors, the executive team or both. The solution may involve an educational programme for board members. NEDs can also consider joining climate-focused initiatives to increase their knowledge and gain access to key tools and information. The Climate Governance Initiative (CGI) drives board-level climate action and hosts 24 chapters across the world which NEDs can join.
Develop a clear and shared vision and strategy for change
For change to be successful in organisations, the leaders must adopt a shared vision. However, a vision is not good enough on its own, it needs leaders who can ensure that all the steps required to bring about this vision are actually implemented. For this to happen, the whole organisation will need to embark on a collaborative endeavour requiring all stakeholders to think and behave differently, starting from the top. Therefore, the board needs to be aware that changes will not be sustained if they occur in isolation;5 they need to be the result of a strategic orchestration of change.
Determine the governance model (roles and responsibilities) for delivering the climate action plan
To bridge the gap between strategy and implementation, there is merit in stopping to think carefully about the organisational structure that will best benefit the organisation.
Climate action is one of those subjects that has high strategic value and requires senior and executive level support. Evidence suggests that an area like this should be positioned at the top management level6 in order emphasise the importance of the climate agenda in the corporate strategy. This will also facilitate the establishment of accountability mechanisms, which will give an understanding of the role that climate will play in the organisation and clarity as to who will be involved and accountable.
It is also worth mentioning that according to research there is a strong positive relationship between gender diversity at board level and enhanced climate disclosures as well as broader climate action.7
Regarding the operational structure, organisations should enable coordination and collaboration among departments, ensuring a smooth transition between the different processes. This alignment should not stop at the executive level; NEDs should also advocate for the engagement of middle management to ensure they have an active role in the transition process.
Tie compensation schemes to climate targets
Compensation schemes that support behaviour change should be considered an essential element of a change process. These schemes need to look at the incentives that the organisation can provide, in order to increase commitment to the adoption of new behaviours associated with the climate strategy.8 Incentives may be intrinsic (personal satisfaction related to interests or values) or extrinsic (tangible rewards from an external source, financial or non-financial). To minimise conflict and increase the focus on long-term value creation, compensation schemes should consider incentives that encourage positive behaviour change with respect to climate action, and also address any existing incentives that may discourage adoption of the desired behaviour change.
In terms of compensation, the establishment of clear accountability for setting and meeting the organisation’s climate goals is highly beneficial. For instance, integrating climate change metrics into executive compensation for both short- and long-term goals.
Climate reporting and disclosure
Due to the current need to accelerate climate action, the literature indicates that climate reporting should be given equal importance to financial reporting.9 The board should ensure that climate disclosure and reporting is a board-level priority, particularly where this is a legal requirement.
The journey needs to start with a baseline emissions measurement and target setting. Science Based Targets (SBT) are commonly used. Once targets have been set, the organisation should look to manage and improve its climate performance and then report and disclose its progress against these targets. The latest available science should be the main source used to constantly revisit and update corporate climate targets. The Centre for Climate Engagement has created a useful guide for business leaders: ‘Navigating the Climate Disclosure Landscape’.
Establishing high-quality stakeholder relationships depends significantly on how the communication is managed, which is also a key element in the success of change initiatives. The incorporation of stakeholders’ voices in the decision-making process is a factor that can influence organisational performance and commitment.10
Organisations must demonstrate the ability to learn from stakeholders as well from previous mistakes, which can be achieved by enabling consultation, measurement, auditing, and reporting.11 Evidence has demonstrated that employee buy-in and engagement increase when organisations demonstrated significant efforts for embedding pro-environmental practices, which also reduces the risk of greenwashing and climate action being perceived as a box-ticking exercise.12
An urgent matter
Since emissions need to be reduced by 45 per cent by 2030, implementation is becoming an urgent matter for organisations in their efforts to contribute to this mission. Boards will need to take a proactive role to guarantee effective delivery on climate action and that these measures will also contribute to long-term value creation for their organisation. NEDs should equip themselves with a set of tools and information on organisational change, which may fall beyond their usual scope of action, but urgently needs to be part of the board agenda for driving change and providing effective oversight.