The Death of the ESG Committee

Climate change is not just a distant threat but an urgent and immediate reality forcing fundamental change for organisations, often transforming their business models. The role of governance in enabling and guiding the urgent transition to the net-zero economy has never been more crucial.

In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards discusses how Chairs can structure their committees, why climate change is central to business resilience and growth, and the role of the board with Vicky Moffatt. Vicky is CEO of Chapter Zero, the Directors’ Climate Forum, a network for Non-Executive Directors and Chairs. Its purpose is to equip and inspire directors to lead on climate from the boardroom. Some 70% of FTSE 350 businesses have members of Chapter Zero on their boards, and the UK is the global centre of excellence for the international network of 32 Chapters in 73 countries. This wider network is called the Climate Governance Initiative which was developed in collaboration with the World Economic Forum. Vicky also serves on the Advisory Council of the Chatham House Sustainability Accelerator and is a board advisor a FTSE 100 business.

“Every director needs to understand that over the longer term, there are only two scenarios for the future of our global economies”

Vicky engages with boards at every stage of the climate journey. Her work is about educating and empowering board members to be effective climate leaders from the boardroom. She paints a picture of two future scenarios:

1. either we invest the $3.5 trillion of capital investment a year required until 2050 to build a net-zero economy – creating huge commercial and growth opportunities
2. or we do not – and risk runaway climate change with potentially devastating risks and impacts for businesses and our economies

“There are headwinds and tailwinds, and I think we are seeing perhaps more inertia than we would like in some boardrooms”

Through a climate policy lens, the 64 elections happening across the globe in 2024 make for an uncertain policy context. Directors talk metaphorically about ‘mending the fishing nets’ while we wait for outcomes.

The current backlash on ESG issues, led by US markets, also impacts climate action.

Still, many tailwinds are also present. Vicky points to regulation, moving fast and providing a force for change. An example is the formation of transition planning regulation, initiated by HM Treasury as part of UKplc’s continuing global leadership in the climate transition, developed by the Transition Planning Taskforce (TPT). The TPT’s framework, outlines a 5-pillar strategic process beginning with the ‘strategic ambition’. Importantly, transition planning puts more emphasis on boards than ever before, with one of the 5 pillars dedicated to governance.

Chapter Zero’s Transition Planning Toolkit freely available on the website, provides a director’s view of transition planning including a briefing, scorecard, governance compass and consideration of barriers and enablers.

For those looking for examples or case studies of transition planning, Vicky recommends the Transition Plan Taskforce website. It has vetted videos, case studies, and technical resources of great practical use.

“I think the longer-term nature of the net-zero transition means it falls in perfect alignment with the remit of the board itself”

The corporate governance code defines the role of the board as ensuring the long-term, sustainable success of the company, generating value for shareholders, and contributing to wider society. So the board and the net-zero transition are perfect bedfellows. The task is to shift the very culture of the boardroom from one where climate is at worst a matter of compliance, to one where it is central to business strategy and growth.

“The further you go, the more you realise climate and sustainability are issues for every board committee and indeed for the whole board”

ESG committees can be hugely important in driving change around business models and strategies, but as businesses transition, climate increasingly becomes a topic for the full board impacting every committee. Spencer Stuart notes that only 37% of boards have an ESG committee today. Vicky argues that such a committee can be a valuable early step. Equally important is board composition and ensuring climate-competent directors on boards.

“There is a sense that this work is too difficult”

Vicky points out that when it comes to climate and the climate transition, fundamental, systemic change is needed. It can feel overwhelming and intimidating for all of us, and there’s a lot of unfamiliar territory. So, everyone needs to be comfortable with being in a mode of learning rather than giving in to the overwhelming aspects.

To help with this, Vicky says directors have to encourage and support each other. Chapter Zero members value the opportunity for peer-to-peer exchange.

“Four quick examples from boardrooms today”

Vicky brings to life examples of how boards are embedding climate into business strategy through boardroom leadership.

In one aviation sector board the nominated director for climate sits in the Audit Committee, even though the board also has an ESG committee, thereby encouraging full board oversight for the impacts of climate change.


In another case, on the board of an energy sector company, no business case can come to the board unless it includes a consideration of sustainability and climate. This is set as a mandatory requirement and forces the issue into every board agenda.


In an FMCG board the CFO regularly attends the ESG committee meetings.

As a last example, Vicky talks about how directors are becoming both mentors and monitors for their businesses. They are becoming more active, and more engaged in businesses, giving them more of a means to accelerate progress on the climate front without breaking down the formality of the governance process.

“The chair is crucial.”

Vicky feels that the net-zero transition requires all the same approaches of conventional change programmes, but on a system wide scale. With all great change work, it is about having a powerful guiding coalition with a clear vision and strategic ambition. Chairs influence and lead this.

The three top takeaways from our conversation are:

• There are only two scenarios – invest in the clean economy or risk runaway climate change.
• A good transition plan is linked to good governance and must be led by the board.
• Climate change is an issue for the FULL board.

 

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