The Institute of Directors New Zealand says climate action should be top of mind for 2020
The global conversation that has dominated the world the past 12 months has now made its way into business. The Institute of Directors New Zealand has identified five issues that should be top of mind for directors in this new year and climate action is the number one issue, followed by governing for purpose, data and privacy, reputation and trust and board leadership.
With climate action, the organisation noted the urgency of the issue this year. It referenced the letter signed by more than 11,000 scientists warning that the Earth is facing a climate emergency, as well as the global strike movement led by Greta Thunberg that an estimated 170,000 people in New Zealand participated in.
“Boards have a critical role to play in responding to climate-related issues to ensure the long-term sustainability of their organisations. In the 2019 Director Sentiment Survey we saw a lift in the number of boards that said they were engaged and proactive on climate change, but it was still only 35 percent,” it says.
“The past 12 months have seen climate change mitigation and the “purpose” of businesses cement themselves as the key challenges that boards must grapple with as they strive to ensure the long-term sustainability of their organisations.”
This follows the lead of the world’s largest asset manager, BlackRock, which has announced it’s putting climate change at the centre of its investment strategy. The company manages an eye-watering US$7 trillion in assets, and says climate change will now be central to its investment considerations.
But this isn’t just for environmental reasons – it believes that climate change is reshaping the world’s financial system.
“The evidence on climate risk is compelling investors to reassess core assumptions about modern finance,” BlackRock Chairman and CEO Larry Fink wrote in his annual letter to CEOs. “In the near future — and sooner than most anticipate — there will be a significant reallocation of capital.”
He listed some of the business risks created by climate change.
“Will cities, for example, be able to afford their infrastructure needs as climate risk reshapes the market for municipal bonds? What will happen to the 30-year mortgage — a key building block of finance — if lenders can’t estimate the impact of climate risk over such a long timeline, and if there is no viable market for flood or fire insurance in impacted areas? What happens to inflation, and in turn interest rates, if the cost of food climbs from drought and flooding? How can we model economic growth if emerging markets see their productivity decline due to extreme heat and other climate impacts?”
When it comes to governing with purpose, the Institute of Directors New Zealand says purpose beyond profit is the key to remaining competitive and sustainable in the long term.
It points to the US Business Roundtable, which made headlines in August with its new Statement on the Purpose of a Corporation. The statement committed its 181 signatories to leading their companies for the benefit of all stakeholders: customers, employees, suppliers, communities and shareholders. While this may not sound revolutionary, previous versions of the statement prioritised shareholders first and foremost.
“Purpose is the driving force to remaining competitive and sustainable in the long term and needs to be led by the board. We expect to see greater focus on purpose as companies continue to adapt to shareholder and stakeholder expectations,” the organisation says.
It also referenced the British Academy’s Principles of Purposeful Business, which notes the need to reform business around purpose, trust, values and culture including to “profitably solve the problems of people and planet”.
Data and privacy was listed as the third issue to be top of mind for directors. It has been a compelling issue for citizens across the globe, especially given the interest in the Cambridge Analytica scandal and the subsequent Netflix documentary about it, The Big Hack.
New Zealand will also be introducing a new privacy act in 2020 – the first time it’s been updated since 1993. This will introduce mandatory privacy breach reporting and increased responsibilities and liabilities for companies that are handling consumers’ data.
“Artificial intelligence, the Internet of Things, big data, data analytics, data privacy, ethics, and security all fall under a board’s role in data governance. It means leading to stay on top of new and emerging technologies, risks, opportunities and innovation,” it says.
The next issue it listed as being important was reputation and trust.
“In a world of fake news in which “talk” is cheap, opinions can be overwhelming and the speed of sharing them is just a click away, it is hardly surprising that public scrutiny for businesses and individuals is on the rise. Trust needs to be earned – it can take decades to build – and just a moment to destroy,” it says.
The 2019 Edelman Trust Barometer announced that the most trusted institution is now “my employer” at 75 percent, more trusted than NGOs (57 percent) business (56 percent), government (48 percent) and media (47 percent). This represents a huge opportunity for businesses, the Institute of Directors says.
Board leadership was the fifth and final issue to have a ponder about.
“If you’re a director you are a leader, one that has an important role to play in transforming the future of your organisations, which will in turn help build our communities and drive the nation’s prosperity and wellbeing,” it says.
Read the full list of the issues here.