What Directors Are Thinking

Listen to article

Dorlisa K. Flur

Dorlisa K. Flur
Director: Sally Beauty Holdings, Hibbett Sports, United States Cold Storage Inc.

ESG and climate issues have been in my two public company boards’ peripheral vision while DEI and cybersecurity pushed the S and G to the forefront. Now, the SEC’s climate disclosure proposal shines a spotlight on the E and is a clear call to action.

Fortunately, I also serve as an independent director for a portfolio company in a highly diversified, 200+ year-old British conglomerate that is well ahead of most with its sustainability commitment. Preparing for board discussions prompted my self-study — and has convinced me that all directors need a threshold level of knowledge and engagement on climate issues to provide effective governance oversight.

Master basic climate vocabulary. Just as we all must be financially literate to make informed decisions, climate literacy is the new Accounting 101 for directors. You need to understand the fundamentals of greenhouse gas emissions — the differences between scope 1, 2 and 3; the company’s baselines; and how its day-to-day operations impact the numbers.

Focus on what matters. Different industry sectors or companies within the same sector do not have the same climate-related risks and opportunities. The SEC’s prescriptive disclosure requirements risk causing “management myopia.” The board can help step back and take a fresh look at the company’s physical exposures and how the changing energy grid could impact its business model — but also opportunities to gain advantages, not just mitigate risks.

Consider how stakeholder math impacts decisions. Debating whether ESG’s multi­stakeholder view conflicts with shareholder primacy wastes energy (pardon the pun). When a company’s customers, talent, communities, business partners or shareholders directly pressure the organization for more climate-friendly solutions, the problems converge. The ROI should include benefits (or avoided costs) of addressing broader constituencies’ demands.

Accept the reality of decision-making under uncertainty. In considering investments in solar arrays and renewables power purchase agreements with 10+ year lives/terms, I have seen a daunting number of unknowns. The relative costs and availability of different energy sources can materially impact the ROI. The board’s judgment on “what you need to believe” and its likelihood under different scenarios can help resist the gravitational pull toward doing nothing.

While the SEC’s proposal has many boards thinking about who can fill the role of their “climate expert,” technical expertise can be sourced from professional advisors or added to management. Never has there been a greater need for a diverse board acting as the strategic integrator across functions, geographies and time to ensure climate preparedness.

Dorlisa K. Flur is a corporate director and strategic advisor, a 2021 Director to Watch and a 2022 member of the NACD Directorship 100.

Other related articles

  • Behind the Record Number of Say-on-Pay Failures in 2022

    Published March 22, 2023
    By Bill Hayes

    Investors are showing no hesitancy to object to nonpreferred pay decisions and program features.

  • The Ups and Downs of C-Suite Compensation

    Published March 16, 2023
    By Bill Hayes

    A new report finds CEO and CFO base salaries increasing but bonuses on the decline.

  • What Directors Are Thinking

    Published March 14, 2023
    By Charles Zimmerman, DMin

    What Directors are Thinking

    Charles Zimmerman, DMin

    Independent Director: 
    Univest, Clemens Family Corporation

  • Don’t Drop the Baton: Talk More About CEO Succession Planning

    Published March 09, 2023
    By Naveen Bhateja

    With more than half of companies failing to plan for CEO succession, the topic needs to become more prevalent at meetings.

    In a relay race, dropping the baton is catastrophic. All the advantages and momentum gained up to that point in the race are lost. Even the most talented teams have a slim chance of recovering from a dropped baton.