Increasingly, directors are assessing their board structures and the skill-sets needed to best support their organisations to lead on reducing the impacts of climate change and meet net-zero targets.

Hobson Leavy in partnership with Chapter Zero NZ and the Institute of Directors NZ, created a collection of resources to support New Zealand directors and boards in identifying the best board structure and director capabilities for their organisation. These resources can also be reviewed and adapted for boards based globally who are seeking to extend their knowledge and upskill in climate governance.

Here are some of the headlines alongside practical guidelines for boards to consider:

Effective climate governance structures

Getting your board structure and skill-set right is the first step but effective climate governance will also require constant learning and sharing of knowledge as the crisis develops and new solutions come into play.

• Boards are expected to lead on reducing the impacts of climate change and in adapting organisations – this expectation is shared across a range of stakeholders (internal and external)
• To protect your organisation, a sustainable business model is needed that takes into account current and future impacts of climate change
• Directors will be required to upskill, remain agile, and make real-time decisions in a fast-changing environment

Board structures – what does a good climate governance model look like?

There is no single approach best suited to managing the difficulties associated with climate governance.

• Consider existing in-house knowledge and expertise, and the risks and opportunities identified and the potential impacts on the organisation
• The World Economic Forum has developed eight climate governance principles to support boards as they seek to improve their climate governance capabilities. For the full set of principles, visit: weforum.org
• Climate change is critical to a company’s strategy, culture, stakeholder relationships, brand, reputation, competitive environment, and accountabilities, and the full board needs to have critical oversight. Boards must retain ultimate-decision-making power and responsibility, even if aspects are delegated to a committee(s) or external advisors.

Effective climate governance – board capability

A climate-literate board requires every director to have a minimum level of climate competence.

• The Australasian Investor Group on Climate Change defines a climate-competent director as someone who “has expertise and experience of climate-related business threats and opportunities, including climate science, low carbon transition across the value chain and public policy”. This is a new skill-set that will increasingly be required of all directors.
• Boards may have to lift their shared level of climate competence to tackle climate change issues effectively
• During director recruitment, skills matrices can be used to ensure boards have all the capabilities required to meet a range of challenges

Making appointments to boards and board committees

To progress board appointments and ensure increasing levels of climate competence on boards and board committees, boards (and chairs) could consider the following questions:

• How will you ensure and assess new director recruits are climate competent?
• How are these skills balanced against the need for other skills?
• Are you regularly reviewing your board to ensure climate competency is present?
• How will you preserve that capability, or refresh underperformance?
• Do you have a succession plan to ensure consistency and ongoing advocacy for the sustainability agenda around the board table?
• Have you considered including younger voices and the insights our next generation can offer?
• Are you considering the diversity of the board when making appointments?

After board appointments are made

Board appointments are only one part of ensuring boards and committees have relevant climate competence and literacy. Future considerations include:

• Skills development: Deliberate conversations with the board and chair ahead of a director recruitment process, regarding skills gaps and future needs regarding sustainability skills and experiences, should be undertaken. In parallel, criteria for appointing directors with climate capabilities should be developed, including which skillsets are prioritised and how new appointments are assessed.
• Succession planning, learning and development: This ensures the board remains balanced and capability is preserved. It also triggers an urgent need to develop current and future executive leaders with the skills.
• Diversity & inclusion: When establishing committees, it is important to set a culture of inclusivity to ensure that the diversity of opinions, experiences, skills and perspectives are best utilised and incorporated within decision making.

Final questions to consider

• Do we have the right competence on our board and access to the right expertise?
• Have we included climate competence in our skills matrix?
• Does management have sufficient resources to respond?
• Have we connected climate change with our strategy and culture?
• Do we need to establish a specialised committee?
• How is climate change integrated into wider risk-management processes?
• Where are the greatest risks and opportunities?

Thank you to Chapter Zero NZ, the Institute of Directors, our partners KPMG and the Sustainable Business Council for their collaboration on this work.

For more information and to download the full set of resources visit:
https://www.chapterzero.nz/resources-and-insights/board-structure/

By

Carrie Hobson
Partner Hobson Leavy

And

By

Lucinda Beamish
Consultand and Head of Research at Hobson Leavy