Data-driven decisions: Governance outtakes

Climate change is shaping a new reality, creating risks and opportunities for businesses. Investors, regulators and other stakeholders are now challenging companies to take responsibility by adopting an integrated, strategic approach to addressing the climate emergency.

Directors need to be fully aware of the implications of climate change – positive and negative – and have the skills, tools, processes and information to act. Boards need to lead from the top, demonstrating their commitment to stewarding their organisations through the challenges and capitalising on the benefits that climate change adaptation and mitigation presents.

“To prepare for our biggest challenges, we need evidence-based information that will help us to understand the issues and make good decisions on what to do.” Royal Society Te Apārangi

The three ‘fast fact’ sessions at the recent IoD Leadership Conference highlighted the need to have up-to-date data and science-based evidence when making decisions. It also highlighted the degree of research and development taking place to support decarbonisation, clean fuel and energy systems, and our understanding of the impacts and pace of climate change.

In board decision-making, it is the role of directors to engage with and test the information provided to them, and to make evidence-based decisions. An evidence-based approach supports everything from risk management to resource allocation and capital investment decisions.

Boards need to ensure they are up to speed on what the implications could be for their organisation and industry. While some boards have appointed directors with technical or scientific knowledge, engaged experts or established advisory groups, given the potential implications of climate change on strategic decision-making and risk management, all directors need a good level of climate literacy.

For organisations preparing climate scenarios as part of their first generation climate statements, directors will need to be fully engaged. In an increasingly complex and dynamic world, climate scenarios form a critical partner to strategic planning and thinking. Importantly, this means that directors should be considering climate-related risks and opportunities in an integrated way with relevant aspects of their organisation’s strategy and operations.

Speaking at a Chapter Zero NZ webinar in June 2023, Lisa Tumahai, Kaiwhakahaere (chair) of Te Rūnanga o Ngāi Tahu and Deputy Chair of the Climate Change Commission said, in order to prepare for climate change they investigated what the future looked like for Te Waipounamu, the South Island. “Going off the best evidence and the best science we could gather, we built a report on what the Ngāi Tahu nation could expect.” This led to the development of a climate strategy and action plan including tangible measures for lowering emissions.

Artificial intelligence (AI) is supporting directors to make better decisions by synthesizing large volumes of data and providing real-time data analysis, predictive analytics, and scenario planning. It can help focus your efforts by identifying patterns and trends, and report these with precision. In doing so, AI can help boards make more accurate predictions and can help in evaluating different scenarios and predicting the impact of different decisions on an organisation’s financial performance.

Nonetheless, data still needs to be analysed and interpreted to provide context – data is only as good as its’ interpretation. Directors need to be able to ask the right questions, ensure staff are looking beneath the trends to the human factors, and determine whether any subconscious biases are impacting on the insights.

Guidance for boards:

• Advice should always be tested – trust but verify.
• Seek to understand how data has been interpreted – what does it mean in this context?
• Do not fall into the trap of simply seeking advice that aligns with what you want to hear or already know/believe.
• Transparency is essential to know who gave the advice.
• Too much volume and detail can divert from the real issues and conceal data gaps.
• Seek more information if you do not have sufficient clarity to make good decisions.
• Undertake professional development as an individual or a board to increase your collective climate literacy.