November Directors’ Spotlight: Andrew Chisholm

 

ANDREW CHISHOLM
Director,RBC 

 Director Spotlight is a regular feature that provides an opportunity for a prominent director to discuss practical insights and critical developments on climate governance important for boardrooms. Chapter Zero Canada recently spoke with Andrew Chisholm, Corporate Director, about new developments critical for boardrooms as they map out their climate strategy, the growing importance of sustainable finance, and the knowledge and skill sets boards need as organizations transition to net zero. 

1. There have been many new climate-related developments and initiatives, within Canada and internationally, over the past year that will significantly impact the operations and strategies of many organizations. Can you comment on a few of these developments that are especially critical for boardrooms at this time? What are some important questions boardrooms should be asking? 

The pace of change within the business community on climate-related strategies and disclosures is accelerating, and the scrutiny on companies is intensifying. The creation of the International Sustainability Standards Board (ISSB) and the likelihood of harmonized and heightened sustainability reporting standards, the very real potential that the SEC adopts a detailed climate rule book, and the adoption of net-zero plans by most leading financial institutions will push companies to identify and explain their risks, opportunities, strategy, measurement systems, data and KPIs surrounding emissions impact and climate change adaptation. 

With intensified transparency on climate, scrutiny will follow. This will extend to the investor base, cost of and access to capital, supplier/customer relationships, access to talent, brand reputation, government and regulatory relations, and otherwise. Together, these factors will affect competitiveness, valuation and longer-term viability. Boards must urgently explore whether management has a plan for carbon emissions neutrality (or a plan for a plan) within a broader strategic analysis of climate-related impacts. Preparation for related financial and nonfinancial disclosure and intelligence gathering on stakeholder expectations will be challenging. They must then evaluate whether the company has the necessary leadership, capabilities and skills to execute this plan. 

2. How can boards ensure they have the knowledge and skill sets, both within their boardroom and senior management team, to properly address future climate-related risks, competitive challenges and opportunities within their organization? How should boards be addressing this when reassessing their competency matrix? 

Few companies today can feel comfortable that they have all the necessary knowledge and skill sets in-house. First, in some respects, we are in uncharted or roughly charted waters. Second, the number of true experts in relation to the scale of transition and adjustment that must occur across the economy is still relatively small. Nevertheless, there are more external frameworks, consultants, advisory bodies, specialized service providers and the like to call upon than ever before. Depending on the scale and resources of the company, more specific external expertise can extend to strategic planning, financial and sustainability reporting, supply chain analysis, climate data management and otherwise. Enlisting interested and passionate talent from within, sometimes from younger ranks, and focusing them on the challenge of adjustment, then augmenting them with external service providers can yield positive results.  

For boards themselves, education will be essential and external benchmarking will be valuable. Assessment of where climate fits among broader ESG expertise on the board is worth clarifying. Governance structures and forward calendars for committees and the board will allow directors to more effectively take these complex issues in bite-sized pieces and ‘follow the thread,’ thereby enhancing their expertise meeting after meeting. 

3. Can you talk about sustainable finance and define that for our director audience? Why is this an increasingly important issue for boardrooms and stakeholders, and what questions should they be asking management to prepare for this changing reality? How might this benefit their organization? 

Sustainable finance applies a broader lens beyond climate. Still, concepts are similar, whether applied to climate narrowly or to broader sustainability considerations (environmental or related to important topics of diversity, equity and inclusion). For climate specifically, sustainable finance involves measuring, assessing, and explicitly considering climate-related factors that can impact risks and opportunities of an economic activity or project over time. This extends to investment practices, lending, insurance and other similar activities, and involves data collection, measurement, reporting, risk management, strategic planning and other foundational activities.  

Incorporating climate considerations into financial and strategic decision-making will impact capital flows, competitive positioning and broader reputational issues throughout the economy. The board should therefore be aware of the climate impact and emissions profile of the company, including its inputs and processes, and the use of its products. It should understand stakeholder attitudes on this topic and the board’s related fiduciary duties. The board should understand risk and opportunity (including direction and speed of travel) arising from climate-related issues, including physical risk impacting the company, suppliers and customers, and transition risk as the world changes to address the climate challenge. The board should test the organization’s readiness for enhanced disclosure around climate and assess management’s ability and capacity to understand the issues and act in a timely manner.