Climate knowledge is invaluable

Boards need to take their “treehugging” executive directors very seriously, says UK director, writer, academic and government advisor Sir Jonathon Porritt.

They also need to make sure all their directors have a reasonable understanding of climate science or they risk unanticipated financial consequences, he says.

Speaking at an Institute of Directors Chapter Zero event in Auckland, Porritt noted there are many boards globally where a non-executive director has been “marked, singled out” to understand climate change.

Those “treehuggers”, as he has heard them called, carry a heavy load.

“That person carries the full weight of sustainability, corporate social responsibility, climate change, diversity… that one person is in the frame and, ‘boy, you better deliver’. Because you are doing this on behalf of the whole board.”

Porritt is a co-founder of sustainability charity Forum for the Future, which is active in the UK, US States, India, Hong Kong, Singapore and Malaysia. He is a former chair of the UK Sustainable Development Commission, where he spent nine years providing high-level advice to government. In NZ, he is chair of the Air New Zealand Sustainability Advisory Panel and a co-patron of the Aotearoa Circle.

Boards are beginning to recognise they need more understanding of climate risk, but many have not yet appreciated the enormity of the challenge, he says.

“Executive search teams are out there diligently, and somewhat frantically, scouring their contacts to secure a new generation of directors who can be wheeled on to boards in order to be the go-to, resident tree-hugging neddy.

“Trust me, that is no viable strategy under the TCFD [Taskforce on Climate-related Financial Disclosures]. The majority, if not all directors, are going to have to step up. They are going to have to gain a proper understanding, proper climate literacy.”

Taking the time to understand the science and potential impact of climate change will help boards make appropriate disclosures when they are required to, which may be sooner than they think, Porritt says.

The TCFD has made recommendations, global accounting bodies have recommended model standards and governments are in the process of implementing reporting requirements. New Zealand has actually got in first with mandatory requirements – applicable from next year to a limited number of large financial companies. The global direction of travel is clear.

Are you part of the problem?

Disclosure is not an end in itself, Porritt says, because disclosure won’t save the planet from the worst-case scenarios of the climate emergency. It should be thought of as a means to gain a better understanding of the source of problems, and of potential solutions.

“There should be no assumption that downstream disclosures will automatically change upstream behaviours. They don’t. The point, really, is mandating eye-opening, brain cleansing, illusion-dispelling intelligence.”

Porritt’s assessment is quite sobering: Boards must make the effort to understand climate science or they become a risk to their organisation’s future.

Directors that make the effort to learn about climate science will realise that the threat to organisational sustainability is real, he says. Those that do not are not looking after their businesses properly. Or their societies. Or the planet they will bequeath to their children.

“Former governor of the Bank of England Mark Carney described intransigence on climate action as the ‘tragedy of the horizon’. The horizon for monetary policy extends out to about two or three years. For financial stability the horizon is a little bit longer but, typically, only out to the outer boundaries of the credit cycle – say 10 years,” Porritt says.

“Once climate change has become the defining issue for financial stability, it could be too late. That’s the tragedy of the horizon.”

Bad, very bad, catastrophic

It’s a new and evolving area of expertise, but that doesn’t absolve boards from having to take it into account, Porritt says.

“Not enough people on boards know enough, or have confidence that they have sufficient understanding of climate science, to allow them to do the job they should be doing on behalf of the people who ae investing in those companies,” he says.

Of course, directors are not the only people in this predicament. Getting a handle on climate change is difficult because there is a significant lag between what scientists know today, and what is happening around us.

“Pretty much everything we are working on – and this is no slight on climate scientists – is at least five years out of date.”

This is increasingly a problem, Porritt says, because the climate appears to be changing more quickly than expected. For example, in March 2022 we witnessed some “utterly astonishing physical changes” in the world’s climate.

March saw record temperatures in both the Arctic and Antarctic simultaneously. In the Arctic, an atmospheric river of warm air pushed temperatures to 30 degrees centigrade above normal for the time of year. The same type of atmospheric phenomenon pushed temperatures in eastern Antarctica to 40 degrees centigrade above normal.

Scientists are grappling with what this might mean, but there is a risk that temperature spikes, alongside known gradual warming at the poles, speed up the collapse of ice shelves and therefore speed up sea level rises.

While optimistic human societies can reorganise themselves to reduce the impacts of climate change, Porritt describes the range of futures open to us as “bad, very bad or catastrophic”.

So directors who embrace their “treehugger” colleagues, who are prepared to upskill and become climate literate, who are prepared to find ways to make their organisations sustainable in the face of climate uncertainty, will help their shareholders – and their societies – avoid catastrophe, he says.