What do board members need to think about to avoid being sued by the climate movement?

Climate change has transitioned from distant environmental concern to pressing business issue. With its impact on operations, supply chains, regulations, and stakeholder expectations, boardroom discussion has become imperative. The rhetoric between business and climate activists has hardened. Friends of the Earth in the Netherlands have sued Shell and are now in the process of suing ING. What should boards do?

In this podcast, Dr Sabine Dembkowski, Founder and Managing Partner of Better Boards, discusses the motivation and logic behind the move to sue ING Bank and learnings for boards with Donald Pols. Donald is Director of Friends of the Earth in the Netherlands. He previously participated in the United Nations Framework Convention on Climate Change (UNFCCC) negotiations as an expert on financing the transition towards renewable energy together with delegations from WWF International and the Dutch government. He has also worked as natural resources program director of WWF International in Beijing, as director of WWF China’s Climate Energy program, head of WWF’s climate program, and as senior adviser on environment and nature in the Dutch parliament.

“We can and will manage to address dangerous climate change if all relevant actors contribute, including the financial sector.”

Donald’s work with Friends of the Earth (Milieudefensie) in the Netherlands is bringing the climate fight to boardrooms. He cites the reality of the regulatory gap as a key factor here, which means that while governments sign agreements and individual countries make pledges, large multinationals often have no one person or entity truly holding them accountable. Often, the financial sector operates in this regulatory gap, which is why he is using a lawsuit against ING to make an example.

ING is one of 30 “system banks” according to the Financial Stability Board, a global financial monitoring group. It is one of the largest financiers of fossil fuels in the world, which gives it a unique opportunity to shape climate change impacts. Milieudefensie and Donald believe that decisions made by the financial sector largely determine the direction of the development of the global economy. So, they are asking ING to cut its contribution to dangerous climate change by half by 2030.

“It’s time to start acting on all these initiatives instead of only talking.”

The first step in a democratic society is always a dialogue and a conversation, but Donald notes that conversations have happening for decades with no real progress. So, taking things to court is an intentional escalation of the conversation.

Is this extreme? Not to Donald. He sees going to court as a part of the democratic system, which allows parties with a difference of opinion to get a judgment on those opinions. It also creates a way to close the regulatory gap. Donald believes that too many firms spend more on the marketing around their climate responsibility pledges than they do on acting on their pledges. Court judgments create firm, objective standards for action being taken vs. not taken. Court judgments also provide companies with a rationale they can take out to shareholders as to why certain business changes are being made that do not prioritize profits above all else.

“If there’s only one message I can give to your listeners, it is that climate change is not an ESG issue. It’s a material issue.”

Donald feels that for boards to truly take climate change seriously, they must stop treating it as a side issue. It is a material issue that is crucial for the financial continuity of a company. Once boards recognize this, the practical steps are to design and implement a policy that is aligned with climate science and international climate agreements.

To Donald, an adequate policy for a board to avoid being sued by the climate movement starts with an overall objective or target to reduce their contribution to dangerous climate change across the whole value chain. The whole value chain means that in addition to a target for its own activities, a firm should also demand climate plans from its main suppliers and clients. Companies that wish to position themselves on the forefront should publish their policy and include it in their public communications as an example to others.

“What we notice in our engagement with companies on a C-level is that climate change knowledge is lacking in general.”

In Donald’s view, acting on climate change starts with leadership from the top. Boards must make climate change a company-wide priority. Ideally, this will result in climate change being a fixed issue on the board agenda, whose importance influences policies not just for the firm, but also for suppliers and clients.

Unfortunately, Donald feels many directors lack the necessary know-how to do this effectively. As a remedy, he would like to see companies establish a dedicated Corporate Sustainability Officer (CSO), and give their CSO a place on the board. At present, climate change is often grouped together under the responsibility of the Chief Risk Officer or placed with the Chief Marketing Officer, but these individuals may not have the right expertise to appropriately advise or guide their firms.

“The boards of multinationals that I visit are concerned with achieving and measuring impact. However, the way we measure impact is fundamentally different.”

As Donald sees it, most boards measure shareholder value. Firms like his, in the activism and non-profit space, measure stakeholder value. Thus, it becomes less about how much money is made and more about what noticeable changes are achieved and what societal support is won.

It is a challenge. Investors want to see the money, and corporate boards are used to speaking that language. Yet court judgments and real commitments to climate change action provide a strong form of support for the board to say, yes, we know that the conversation has been about profits, but profit alone is not a justification for failing to take action. In this case, a longer-term view must be taken, Donald feels, and a different conversation given priority. After all, there can be no profit and no financial continuation of a company if we end up on a dead planet.

The top takeaways from our conversation are:

• There’s a need to act to prevent dangerous climate change, and this need has become a new societal norm applicable to all corporate and financial institutions.
• Climate change is a material issue with fiduciary implications. Not acting in accordance with this responsibility already has and will have legal implications in the future.
• On a more personal note, you’re a CEO, but you’re also a parent and a grandparent. You’re a board member, but you’re also responsible for life on Earth, especially for your family. The discussions you have and the decisions you make on a daily basis will have an impact on the future of our shared planet. There’s no profit on a dead planet. Act accordingly.

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