Cutting Past The Noise On The Climate / Energy Transition

Over the last decade, climate and sustainability have become more of a focus for boards and sub-committees. The energy transition is now a core part of strategy discussions for many industries. However, there is currently a lot of conflicting noise around this agenda. On one hand, a wide range of regulatory requirements is coming in. At the same time, the EU is moving on a “simplification agenda” for its sustainable finance regulations, and other markets are taking different courses. So, there is a lot for boards to digest around this topic, making it an opportune time to take stock of where we are and what boards should consider.

In this podcast, Dr. Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses climate/energy transition with David Harris, who has worked on these topics for over 20 years. He leads sustainable finance strategic initiatives at LSEG (London Stock Exchange Group), having previously led sustainable finance for two of its divisions: FTSE Russell in its index business and its Data and Analytics division. David has served on various UK, EU, and UN technical and advisory bodies. He is a fellow of Chapter Zero, a forum for board directors to share knowledge and expertise on bringing climate change into business strategies.

“20 years ago, this was regarded as quite a niche area. Today, that picture is completely different. It’s one of the top issues for institutional investors.”

David’s work at LSEG has given him insights from a corporate and investor perspective. He has witnessed an incredible transformation over the last two decades. Sustainability was perceived as a niche investment area but has become a normal part of many institutional investors’ strategies over recent years.

Today, David sees it as a top issue for institutional investors, and the data backs him up. In FTSE Russell’s annual survey of global pension funds, they ask if the funds are integrating sustainability issues into their investment strategies. Among the largest and most sophisticated funds, those with more than 10 billion dollars in assets under management, 86 percent do.

“Of the different sustainability themes, climate change and energy transition rank in our asset owner survey as being the very top priority.”

David notes that what boards see isn’t purely driven by investor preferences pushing this forward – it also changes in the underlying economy. Data from the International Energy Agency shows in 2024, annual investment into the energy sector was $3 trillion, $2 trillion in clean energy and $1 trillion in fossil fuels, whilst around five years ago, they were roughly on par at $1 trillion each. So, David says we are well into a substantial shift in the global economy, and boards and investors need to understand that and process what it means for them and their portfolios.

“I think there has been some surprise… from boards at the level of reporting requirements coming at them.”

Shifts of this magnitude come with many reporting requirements – requirements that have many boards less than thrilled. Some of the exasperation is at the newness of the requirements, and some is frustration with the scope. David feels this is a legitimate concern, as many boards find that keeping up with reporting can detract from focusing on the most material and relevant issues of running the business. In the EU, this feedback (and pushback) has been noted, and the region is moving forward with a simplification agenda, although it remains in the draft as of this early 2025 writing. Boards everywhere are keeping an eye on this, as it will impact governance and board effectiveness in the years ahead.

“What’s really important here is… sustainability standards are increasingly being set in a way which aligns them with the way companies are used to reporting on financial information.”

The International Financial Reporting Standards (IFRS) Foundation has set up the International Sustainability Standards Board, which may be familiar to many listeners. It aims to get global sustainability standards set up in a way that aligns with how companies are used to reporting on financial information and in a format that’s easier for the investor community to use. David feels this is helpful because he hears from many companies that they’re prepared to report on sustainability-related information, but, they don’t want to report on slightly different information based on different standards in different parts of the world. These companies want to do it well but just once. Some 36 countries are now moving towards adopting the ISSB reporting standards, which will help with consistency.

From David’s point of view, how transition plans fit into this is to serve as a driver of meaningful conversations with the investor community. Under the ISSB climate reporting standard, they are an optional component; companies are required to publish energy/climate transition plans if they have one. It is a more strategic document so sits slightly separately to annual reports. As the business changes or key practices change, it can be updated, not every year but perhaps every three years or so.

“A number of the world’s largest institutional investors are in the process of reorientating their portfolios as they regard climate change and energy transition as big macro trends of our generation.”

David counters the frustration sometimes expressed by board chairs that while they may put effort into preparing climate and sustainability metrics, all investors really care about is the financials. He notes investor demand for climate and sustainability data from LSEG’s data and analytics business and the demand for climate indexes. This is driven, in part, by much longer-term investment views and is true for some of the largest asset owners in the world across Europe, the UK, the Americas, and Asia. It’s a global phenomenon.

David would advise boards grappling with climate sustainability and associated reporting that despite all the policy and regulatory uncertainty, it’s important to look past the noise and keep the focus on the investor community’s actual needs. Build expertise, too, so the board can focus on the most material issues.

For non-executive directors and board members, don’t forget about free resources like those available from Chapter Zero, which include a Transition Planning Toolkit designed to support you in overseeing the development and delivery of a credible transition plan, a Knowledge Hub, and the chance to network with others to build connections and understand how other boards are approaching this.

The three top takeaways for effective boards from our conversation are:

• Don’t get lost in all of the reporting regulations. Cut through that and focus on the material issues and what’s right for the business.
• Make sure you’re engaging your investors, not only the sell-side analysts but also the institutional investors who sit behind them, i.e., the pension funds, sovereign wealth funds, and asset managers, and understand their priorities.
• Build your expertise and lean on the resources available through Chapter Zero and similar networks.

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