The Chairperson’s Guide to Climate Integrity

Trust and integrity are at the core of human interactions and relationships, and business is no different. As stewards of the corporation, boards of directors have a crucial role in building and maintaining trust. Therefore, they must stay abreast of rising stakeholder expectations.

Due to stakeholder pressure, businesses are expected to respond more quickly, diligently, and authentically to climate change and nature degradation. Environmental challenges are increasingly the focal point of garnering stakeholder trust, with expectations rapidly evolving in scope and intensity. Companies are expected to consider their impacts on the whole value chain, going beyond emissions to include equity and nature considerations. Action needs to be quicker and more ambitious than ever before.

To help build and maintain strong corporate trust, board members should understand their role in embedding integrity in four critical pillars of trust:

• Humanity, leading with genuine interest and curiosity on emerging stakeholder concerns related to climate and nature;
• Transparency, with open dialogue on the challenges, uncertainties and trade-offs required;
• Capability, by helping to ensure leadership and employees are upskilled to understand and effectively address risks presented by climate and nature; and
• Reliability, by holding leadership accountable to deliver on climate and nature commitments consistently and dependably.

Building and maintaining strong trust can yield significant value for the business, driving greater customer loyalty, employee productivity and community acceptance, as well as reinforcing investor and supplier relationships and business resilience during setbacks.

However, given the complexity and high stakes, it can be easy to lose stakeholder trust. Common risks to integrity and trust in the sustainability context include:

• Commitments and claims that are not achievable or substantiated;
• Commitments and claims that are not science-based, including over-reliance on carbon offsets;
• The high susceptibility of climate and nature investments to corruption and fraud due to the emerging nature of these markets;
• A lack of consideration of social and community impacts; and
• Communications that mislead the audience (often referred to as greenwashing).

As stakeholder scrutiny rises, companies are increasingly exposed to risks arising from litigation and changing reporting standards. Legislative change can often be a lagging indicator – by the time companies have implemented mandatory climate- or nature-related reporting, community trust may already be eroded and, in some cases, result in legal action. In the case of climate, more than 2,000 litigation cases have been identified worldwide. With the number of cases doubling since 2015, high growth is expected to continue. As sustainability expectations continue to evolve, companies need to keep up to date with peer progress and remain in stride with corporate leaders to minimize the risk of litigation.

Mandatory sustainability reporting standards can further amplify the exposure to litigation. They can also offer a measure of protection when applied diligently and in good faith. Proactive companies may also use transparent sustainability reporting to obtain a competitive advantage. While the introduction of mandatory reporting does not change a director’s fiduciary duty to act in the company’s best interests by considering climate risks and opportunities, it aims to provide a framework to assist board members in identifying and disclosing them. All boards of directors, regardless of whether the organization they serve is subject to mandatory climate and sustainability reporting, should have a view on how to quantitatively report on the relevant risks and opportunities.

It is the board’s responsibility to support and develop the integrity of, and trust in, the organization. Boards can help support management by instilling a culture aligned with its purpose and applying a system-wide lens when responding to climate and nature risks. This involves considering the interdependencies between the many systems that share common elements – like industries and supply chains. It can include reflecting on stakeholder relationships by measuring and evaluating stakeholder trust. To help foster high levels of integrity and trust in commitments and claims, businesses can:

• Build strong foundations by adhering to science-based guidelines when developing an action plan and aligning internal and external messaging with demonstrable actions;
• Be committed to the delivery of claims and commitments by introducing leadership incentives, endorsing thorough due diligence and ensuring accountability of leadership; and
• Clearly communicate plans by being honest, straightforward and clear in the company’s disclosures and transition action plans.

 

About the Chairperson’s Guide series

We are in a decisive decade to accelerate action against climate change. Choices made over the next decade will impact the world for centuries to come. Board members have stewardship obligations that include taking action to address climate change and nature loss within their organization and beyond. This ongoing series, published by the World Economic Forum in collaboration with Deloitte and Climate Governance Initiative, addresses how boards can steer the transformation of their companies to thrive in a net zero and nature-positive economy.

ALL GUIDES CAN ACCESSED HERE.