Connections between Board Characteristics and Climate Change

Below you find a summary of the full report written by the the financial services research group of the Cambridge Institute for Sustainability Leadership (CISL) Masters Program: Samuel Anthony, Beate Born, David Jones, Clare Nickson-Havens, Veronica Palmgren, Nash Peerbocus and Richard Burrett. Feel free to contact us for further information.

Picture source: https://en.reset.org/knowledge/climate-change

Best practice corporate governance requires the board of directors to oversee the stewardship of the firm, including risks and opportunities to the firm’s assets and future trading performance arising from the firm’s response to climate change. The research paper explores links between board characteristics and climate response, reviewing global literature and drawing on qualitative data from the authors’ field research in financial services firms in Europe, UK and Australia. The literature suggests three themes of board characteristics: board structures, board processes, and board diversity and mind-set. To investigate these themes in the financial services sector, we collected and analysed data through a survey and semi-structured interviews with board members and climate governance experts in banks, asset managers and management consultancies. 

The paper concludes with the following findings: for board structure (characteristics such committee responsibilities, CEO/chair duality, and board size), there are no structural features driving climate response; for board processes, climate response depends on board access to climate information to facilitate their fiduciary oversight of long-term firm performance; for board diversity and mind-set, diversity goes beyond traditional measures of diversity such as gender and age, to encompass factors such as expertise and a “sustainability mind-set”.

Mind-set, particularly for chair and CEO roles, is a pivotal factor driving climate response within financial firms. Moreover, the research indicates that gender and age diversity are linked with sustainability mind-set and, crucially, the importance of the board chair possessing a sustainability mind-set determines whether climate is included on the board agenda and ultimately in the firm’s climate response.

These findings are relevant to nominations committees recruiting board directors, where climate should be included in skills evaluation, and we recommend that board recruitment firms should recognize the importance of sustainability mind-set as an attribute for board appointees.