The Role of Director Education in Climate Risk Oversight and Strategy
Climate change is one of the most significant risks facing businesses today, and it is essential that directors understand how to effectively oversee and manage this risk. Training on climate risk oversight and strategy is crucial for directors to make informed decisions about the future of their organization and position it for success in a rapidly changing world. Yet, there is currently a skills gap on boards to properly oversee climate risks and opportunities.
The Current State of Climate Expertise in Boardrooms
How many directors already bring ESG and climate-related experience onto the board? In September 2022, Diligent Institute published its inaugural Board Diversity Gaps report in collaboration with 22 partner organizations to provide a more comprehensive view of corporate boardroom composition and diversity globally. In this report, we conduct a global analysis of some of the major dimensions of boardroom diversity, including director skillsets and expertise.
Our analysis of newly appointed board directors’ skillsets and professional backgrounds – taken from Diligent’s database of nearly 6,000 public companies around the globe – shows that new talent is being added to boardrooms. The percentage of newly appointed directors bringing in professional experience in areas such as technology, marketing, sales, human resources, ESG and legal stood at 35 percent from January through May 2022.
But through May 2022, just 1.7 percent of new director appointees had ESG or sustainability expertise. In 2021, this figure was only 2 percent, and was lower relative to the percentage of directors being added to boardrooms who bring other domain skillsets included in this analysis. In spite of recent increases in the percentage of directors with ESG experience being added to the boardroom, the percentage of directors bringing these backgrounds is still relatively low.
Knowing that the number of director appointees with prior ESG or sustainability expertise is low, what are boards doing to upskill current members? In May 2022, Spencer Stuart and Diligent Institute published a report entitled Sustainability in the Spotlight, which sought to dig deeper into board oversight, structures and upskilling around ESG.
According to our global survey results, strategy is the most common area where ESG goals and metrics have been incorporated, at 71 percent of respondents. Integrated risk management is next at 52 percent, followed by director appointments at 48 percent. Meanwhile, 32 percent are incorporating ESG into director onboarding and training, and 34 percent into board evaluations.
Organizations are also employing a wide variety of methods to increase their board’s ESG knowledge. More than four in 10 (42 percent) are bringing in outside experts or consultants, followed closely by board training for directors at 38 percent. Only 15 percent are doing nothing to upskill the board.
The Benefits of Climate Education for Directors
Board education and training on climate risk oversight is a popular method because it provides directors with a deep understanding of the risks and opportunities presented by climate change. This knowledge is critical for making informed decisions about the future of their organization and positioning it for success in a rapidly changing world. For example, training can help directors understand the potential financial impacts of climate change on their business, such as increased costs from natural disasters or changes in consumer demand for products.
Another benefit of training on climate risk oversight is that it equips directors with the skills they need to oversee the development and implementation of effective climate strategies. This includes understanding setting science-based targets, measuring and reporting on emissions, and engaging with stakeholders and shareholders on climate issues. Additionally, training on climate risk oversight can help directors to identify and mitigate potential threats, such as supply chain disruptions or changes in regulations.
In addition to the direct benefits for the organization, training on climate risk oversight also demonstrates that directors are committed to taking action on climate change. This can help to build trust with stakeholders and shareholders, and more emphatically position the organization as a responsible corporate actor.
Inside the Diligent Institute Climate Leadership Certification
One way for directors and executives to gain education in climate risk oversight and strategy is by enrolling in the Diligent Institute Climate Leadership Certification. The Certification is a comprehensive program that provides directors and executives with the knowledge and skills they need to understand and address the challenges of climate change.
The program covers topics such as:
- The science of climate change,
- The risks and opportunities climate change presents to businesses, and
- The role of directors and executives in developing and implementing climate strategies.
The Certification equips directors and executives with the skills they need to develop and implement effective climate strategies. This includes understanding how to set science-based targets, measure and report on emissions, and engage with stakeholders on climate issues.