Corporate Boards walking an increasingly thin line on Climate Emergency

By Helle Bank Jorgensen

(December 2, 2019, 2:48 PM EST) -- Helle Bank Jorgensen

We live in changing and sometimes contradictory times. It used to be that most companies wanted as little regulation as possible, and lobbyists would use time lobbying for less stringent environmental rules — but that seems to be changing.

Open any form of news outlet from traditional newspapers, television and radio to all kinds of online and social media, and you will be reminded that we are in a climate emergency. As a matter of fact, “Climate Emergency” is Oxford Dictionary’s Word of the Year for 2019. And the House of Commons passed a motion declaring a national climate emergency in Canada on June 17, 2019.

As corporations are hit by the tsunami of news and protests in the streets (by future employees and in their corporate campuses by existing employees) as well as climate litigation in the courtrooms and from demands by investors in the boardrooms, most know that it is time to take a stand.

Some companies are now starting to lobby for stricter regulations. Versions of a carbon tax are supported by several big energy companies such as Exxon Mobil Corp, BP PLC and Shell with the aim to establish a level playing field and ensure fuel for low carbon innovation (no pun intended).

In April 2018, Royal Dutch Shell openly criticized the U.S. Chamber of Commerce’s climate policy. As a result, the chamber revised its website to acknowledge that humans contribute to climate change and that “inaction is simply not an option.”

We are now moving from changing text on a website to urging lawmakers to take action. For example, on Nov. 21, 2019, colleges, universities, investors and companies including American Eagle Outfitters (AEO), DSM, Mars, IKEA, Schneider Electric and Nestlé sent a letter to Pennsylvania General Assembly with clear support to lawmakers to take climate action.

They end the letter with the following paragraph: “Pennsylvania has been an energy leader for centuries, but the current energy system is at a turning point. In order to maintain our energy leadership, the commonwealth should embrace clean energy and foster the rapid transition to a thriving, low-carbon economy.”

Megan Villarreal, policy and public affairs at Nestlé, was quoted saying: “Transitioning to clean energy is not only the right thing to do, it also helps us to save money and stay competitive. With the right policies in place, Pennsylvania can attract more corporate clean energy investments and strengthen the state’s economy.”

A few months earlier, 87 major companies, with a combined market capitalization of over US$2.3 trillion and annual direct emissions equivalent to 73 coal-fired power plants, committed to setting science-based targets through the Science Based Targets initiative (SBTi). The SBTi independently assesses corporate emissions reduction targets in line with what climate scientists say is needed to meet the goals of the Paris Agreement.

The dial's also moving in Canada and at COP25

In May 2019, the Bank of Canada released its first report on the threats climate change poses to the financial system. And the former governor, now the governor of the Bank of England, Mark Carney, continues to be very vocal, urging companies to act and report by following the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD).

That same governor is now to become the UN special envoy on Climate Action and Climate Finance and will most likely have lined up meetings with many of the 50 heads of states and government who will discuss how to combat climate change in the coming weeks in Madrid, host of the global UN Climate Change Conference (COP 25).

On Dec. 2, the opening day of COP25, global corporate leadership initiative, RE100, reported that around 200 of the world's most influential companies committed to 100 percent renewable power, and that one in two are set to use their influence with stakeholders, such as policymakers and utilities, to overcome policy and market barriers and push for a faster transition to renewables.

I would assume that we in the coming days, weeks and months will see a list of new commitments from companies and investors to combat climate change — and new regulation.

What this means for in-house lawyers

World leaders from governments as well as businesses and investors are under increased pressure and scrutiny from future voters, investors and employees. It is not only the younger generation that is vocal; it is also the investors who are gearing up to be able to engage board members on their climate strategy — and some, such as activist hedge fund TCI, are getting ready to punish directors of companies that fail to disclose their carbon dioxide emissions.

Board members need to be fully aware and on-board with the lobbying strategy of the company they serve. And the executives and the board of directors have to ensure that the lobbying position is known and followed from the boardroom to the business partners, and that it is a global position, based on sound decision making, not based on the popular position in a certain country.

The companies that find their lobbyists in Europe siding with the pro-climate regulators while their lobbyists in the U.S. side with those against climate regulation walk on a very thin line and I would say that the risks of being called out by the most important stakeholders and shareholders grow higher every day.

In my view, boards need to ask the simple question: What are we lobbying for or against when it comes to climate change? Is that the position we want to keep (and some might add, will our key stakeholders and grandchildren agree)? And how do we ensure that all employees and business partners follow our position? The complexity of these questions often requires the involvement of legal counsel.

The last question might also require a financial review of the money being used on direct and indirect lobbying, or what important stakeholders would categorize as lobbying.

Helle Bank Jorgensen, hbj@competentboards.com, is the CEO of Competent Boards Inc., which offers a Competent Boards Certificate Program. She is an experienced board facilitator, board member and serves on His Royal Highness Prince of Wales A4S Global Expert Panel as well as WBCSD Governance & Internal Oversight High-Level Advisory Group. She is a business lawyer and state authorized public accountant by training.

Photo credit / hanohiki ISTOCKPHOTO.COM

This article was originally published by The Lawyer’s Daily (www.thelawyersdaily.ca), part of LexisNexis Canada Inc.

© 2019, The Lawyer's Daily. All rights reserved.