Climate change poses a very real threat—yet new research by Deloitte Global shows that organizations are failing to place climate change initiatives at the core of their stratagem. Lack of literacy on such issues can no longer be an excuse from leadership and modifications must be made today.
Among more than 350 board audit committee members in 40 countries surveyed by the Deloitte Global Boardroom Program in Q4 2021, 70% stated that they have yet to complete an assessment of how climate change will affect their company’s operations. In the wake of the COVID-19 pandemic, far-reaching climate change, and growing economic inequality, companies—and in particular their leadership—need to not only build shareholder value, but contribute to solving some of today’s most important issues.
A need for basic literacy on the subject is paramount, but respondents claimed the most formidable barrier they face is a lack of standards across geographies. 60% believe the lack of global reporting standards makes it hard to compare their organization’s progress against meaningful external benchmarks, while 46% attribute an ever-shifting reporting and regulatory landscape and an inconsistent methodology as leading challenges. Others (27%) cite conflicting messages from investors, who are simultaneously demanding long-term (and potentially expensive) adjustments without sacrificing short-term financial results (see Figure 1). However real and credible these obstacles are, what is clear is that no board can afford to be inactive. Change isn’t coming; it’s already upon us.
The specific elements of a company’s climate strategy will depend, of course, on a multitude of factors, from geographical location to the services it offers. Such policies should offer specific details, rather than simply listing them. That means, for example, describing in what way climate commitments are incorporated into business plans; or how those plans have been reflected in the projections of cash flows.
As announced at the COP26, global sustainability reporting standards are now being developed by the IFRS Foundation’s International Sustainability Standards Board (ISSB). But international reporting initiatives such as the Task Force on Climate-Related Financial Disclosures (TCFD) and the Sustainability Accounting Standards Board (SASB) are already helping companies embed climate issues into their businesses, and measure and report on progress and performance. The ISSB plans to issue new standards in 2022, which will reflect the TCFD recommendations. Companies that recognize the importance of acting now have the opportunity to help frame the conversation—rather than perpetually trying to keep up.
In addition to highlighting challenges, the survey also revealed some best practices. 87% of respondents said better education among board members is essential, while other recommendations included getting more robust information from management (79%) and stressing the importance of internal alignment around the company’s climate strategy (78%). However, this isn’t enough; communication is also essential, with 63% recommending that companies publish their climate change plan to investors. 41% of respondents also suggested bringing on new members with specific climate expertise.
In short, businesses need to focus on transitioning successfully to a low-carbon economy.
Standards used today will likely evolve, and organizations must be willing to adapt now. Uncertainties can be no excuse for inaction; leadership needs to step up and meet the climate crisis head-on.
Editor’s note: The article is brought to you by Deloitte Luxembourg and only reflects the opinion of the author: Francesca Messini, Partner and Sustainability Leader at Deloitte Luxembourg.
