Focus on G, But Keep E at the Forefront

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With temperatures continuing to climb globally and stakeholders demanding action, the environment will remain a priority for boards.

The letter G is a wonderful letter. Some of my favorite words begin with it. 



But the G word we chose to focus on for this issue is governance, mostly because when we talk about ESG issues for business, governance can get short shrift, with so many­ ­zeroing in on the environmental aspects of the term.

But here’s the thing: While I hope you enjoyed our focus on the letter G and the very important reasons that it should take center stage in the boardroom, don’t forget that the reason E gets so much attention is that the environment is vital to the success of businesses and the continued existence of the planet. 

A June 2022 article by World Economic Forum, “Why Sustainability Is Crucial for Corporate Strategy,” details the reasons why businesses need to make environmental concerns a part of their strategy. First, investors want it. Consulting firm Gartner found that 85% of investors are considering ESG factors when they decide upon investments. Consumers are also demanding that businesses pay attention to sustainability. For example, 73% of Gen Z consumers in a First Insight survey said they are willing to spend more for sustainable products.

Businesses that skimp on environmental concerns also risk losing the battle for talent. In a Deloitte survey, 49% of Gen Z respondents said they have made career choices based on an employer’s strategy not aligning with their personal ethics.

Fortunately, businesspeople are paying attention to the calls for action on the environment and are developing strategies to address the issue. Another Deloitte survey, 2022 Climate Check: Business Views on Climate Action Ahead of COP27, polled 700 executives to learn their top concerns in relation to the environment, the actions they were taking and the strategies they would like to see the government adopt to combat climate change. The survey was conducted in advance of the 27th Conference of the Parties of the United Nations Climate Change Conference.

A large majority (87%) of respondents to this survey acknowledged that investing in environmentally sustainable practices has long-term economic benefits, and 75% said the reduction of carbon emissions would not hamper the growth of their businesses.
When asked which climate change topics should garner extra attention, 50% of respondents identified climate-related security risks (national and global security risks that are attributed directly or indirectly to changes in climate patterns). 

According to the report, businesses are prepared to fight against climate change, but they require more government support. With 66% of executives noting that greenwashing has become a major problem, it is no surprise that 63% of respondents want to see the government crack down on companies that make misleading sustainability claims about their products. Also receiving a majority of responses are the minimization of investment risk for clean technologies (57%), implementation of new regulation and policies (55%) and implementation of a carbon tax (51%). Interestingly enough, while the aforementioned 55% of respondents want the government to implement new regulation and policies, just 27% of those surveyed want the government to prioritize the enforcement of existing rules. 

One of the steps companies are taking to beat back climate change is collaborating with third parties. Sixty-two percent of respondents are working with nongovernmental organizations, while 50% are teaming with academic institutions and 44% associate with activist groups. As to the nature of that collaboration, 69% of companies provide research and development support, 65% make monetary donations to the third parties and 64% have teamed up to establish new climate- and sustainability-related programs. 

Deloitte’s report paints a relatively rosy picture of what companies are doing to combat climate change and that should be applauded. The statistics coming from the National Centers for Environmental Information’s Annual 2022 Global Climate Report? Those aren’t so optimistic.

For instance, the global average temperature for 2022 was the sixth highest since the start of global recordkeeping in 1880. A June heat wave in Japan marked the country’s worst streak of hot weather since 1875. Overall, 2022 was Asia’s second-warmest year on record. In Madagascar, three major storms made landfall in February, the first time such an occurrence has taken place since January 1988. Europe, meanwhile, experienced its second-highest yearly temperature, with warm, dry conditions causing drought and wildfires.

Speaking of wildfires, a little closer to home, California was once again inundated by dry, warm weather throughout the spring and fall. Hurricane Ian obliterated Cuba’s power grid and rampaged across Florida at near Category 5 strength with record-heavy rain and monstrous storm surges. Ian’s sister in destruction, Hurricane Fiona, ripped up the Caribbean and made landfall in Nova Scotia of all places, making it the strongest and costliest post-tropical cyclone ever to hit Canada. 

Please forgive me for the Weather Channel-esque excursion, but all of this is to say that the effects of international global warming are real. Companies have a responsibility to help fight them because it is best for business, but also because it is good for the planet. It is the board’s duty to ensure that matters of governance are not crowded out by environmental concerns. But environmental issues deserve the focus they have received in recent years, and directors can expect that they will only increase in importance until worldwide temperature averages start to descend. 

Bill Hayes is managing editor of Directors & Boards

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