In his annual letter to CEOs, BlackRock Chairman and Chief Executive Larry Fink underscored the need for companies, investors, and stakeholders at large to address climate change. Fink is calling on companies to eliminate greenhouse gas emissions by 2050, and to limit global warming to no more than 2 degrees Celsius above preindustrial averages.
BlackRock has nearly $9 trillion under management, so Fink’s words don't go unnoticed.
Public support for measures to combat climate change has possibly never been higher, given recent climate-related disasters, including the failure of Texas’s power grid in the face of extreme cold weather.
In a recent piece in the National Association of Corporate Director’s BoardTalk blog, Melissa Paschall, the manager of governance at non-profit sustainability advocacy organization Ceres, said "the role of corporate directors is central to BlackRock’s increasingly active stance on climate change, and on environmental, social, and governance issues more broadly."
How can companies push the envelope and effect real change when it comes to ESG issues?
With Fink’s letter calling out directors on their responsibility to proactively oversee and disclose their company’s climate strategy, Paschall said boards need to build quickly their climate and ESG competencies. Directors should keep in mind shareholder resolutions to remove ineffective members may be a real threat.
A 2017 Ceres report points to several key characteristics of an "ESG-competent" board. Such a board:
- Integrates knowledge of sustainability issues into the board recruitment process to hire directors that ask the right questions
- Educates directors on sustainability issues to allow for deliberation and strategic decision-making
- Engages regularly with external stakeholders and experts on relevant sustainability issues
Paschall points to the important distinction between an ESG-competent director and an ESG-competent board. While an ESG-competent director has expertise relevant to ESG issues that affect a company, an ESG-competent board can engage thoughtfully on those issues as one cohesive deliberative body.
Education is critical for a board to achieve ESG competency. Directors should participate in executive education programs, attend conferences, read reports and invite experts to speak at board meetings. While this may seem daunting, it’s imperative for directors to form the backbone of ESG risk management, according to Paschall.
“Every corporate board should be thinking about how to contribute to a net-zero future, and how to thrive within one. That world is coming, whether we are ready for it or not,” wrote Paschall.
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