CEO Sarah Keyes and Principal Michelle de Cordova wrote an opinion piece for The Globe and Mail titled, For today’s corporate directors, 2050 climate targets are generations away. Here’s what they need to do now.
An excerpt is provided below, and the full article can be found here.
For today’s corporate directors, 2050 climate targets are generations away. Here’s what they need to do now (Excerpt)
By Sarah Keyes and Michelle de Cordova
The Liberal government recently tabled the Canadian Net-Zero Emissions Accountability Act, which will bind Canada to achieve “net-zero” greenhouse gas emissions by 2050. Leading companies are also making net-zero commitments. For Canadian firms, the current lack of certainty about the national road map toward 2050 presents one challenge.
Another is the 30-year time horizon – a generation away in human terms. From the perspective of chief executives with global average tenure of five years, it is as many as six “generations” into the future. With few exceptions, the present incumbents will be long gone at the final reckoning. Board directors typically outlast CEOs, but not by much: Average director tenure in Canada is just over seven years. So even for a director, the realization of a 2050 net-zero target may lie four “generations” ahead.
Directors have a duty to act in the best interests of the corporation. Accordingly, they should play a critical role in ensuring companies achieve their long-term strategic goals, including the transition to net-zero emissions. However, a recent global survey for Focusing Capital on the Long Term (FCLTGlobal), a coalition of investors and companies co-founded by Canada Pension Plan Investments, found that only 20 per cent of directors served at companies where both the board and management were focused on the “long term” – defined as longer than two years for management and five years for the board. In another survey, executives cited boards as a key source of pressure toward short-termism, alongside investors and compensation that creates incentives for short-term results. All parties agree that short-termism is detrimental to long-term value creation, but they can’t seem to move beyond it.
Nevertheless, boards need to confront the fact that climate change represents a systemic risk with the potential to affect almost every industry. Climate risk is not just about GHG emissions: It includes physical risks to operations from extreme weather events, changing weather patterns and sea levels, and transition risks from emerging policy and legal requirements, technological developments, shifts in market demand for products, and reputational concerns.
Amidst a culture of short-termism, what first steps could boards take today to begin addressing a long-term issue that remains shrouded in uncertainty?
Read the full article here via The Globe and Mail