Globalization. Climate change. Consumer awareness. Social activism. Blazing supply chains. Every time a board looks up, a new problem arises. It’s no longer Risk’s classic board game, ruled by diplomacy, conflict, and conquest.
Of all these issues at stake, ESG (environment, social and governance) now occupies the first place. It covers a broad spectrum, from climate change, resource depletion and working conditions to supply chain considerations, diversity, equity and inclusion, and cybersecurity. .
It’s a lot to take, but where there is risk there is also an opportunity if you play the game well. In a world where ESG and weather factors can make or break your business and where investors and stakeholders demand reliable reports, the stakes are high. Let’s look at the key players.
Actor 1: Climate change
This is the big one. A recent report by Deloitte Global that surveyed audit committees in 40 countries found that just under half of those committees (47%) considered themselves to be “climate competent”. The report, released in November this year, found that seven out of ten committees had not even completed a full climate change assessment.
If management doesn’t understand this problem, then your board and your business are in deep water (pun intended). If they haven’t planned for changes or are ignoring them, then your business is in a defensive position, not the proactive position it needs to thrive.
Most businesses simply don’t understand climate risk and how it impacts their business. Big carbon emitters see what’s in front of them, others don’t. It is not about ignoring, it is outright ignorance.
Boards of directors already face a plethora of reporting requirements, and there are more to come. If you don’t have a climate transition plan, banks will become increasingly suspicious while asset managers and investors will simply walk away. Although companies increasingly say “we will be carbon neutral by 2050”, stakeholders and investors want – and need – concrete plans showing the path and steps towards this goal.
Boards should also instill a culture of scenario planning. Without it, it’s like driving a car looking only in the rearview mirror and mirrors. Just ask the people of British Columbia, Canada what can happen if you don’t plan for what to expect in terms of climate change. Or in Australia and California, where fires have ravaged the landscape. Or western Germany and Belgium, where the floods killed more than 200 people.
It is not all gloomy. Boards have the opportunity to be part of the solution. For example, obtaining loans from the bank linked to carbon targets. Be like Ãrsted. This Danish company was formerly known as Dansk Oil and Natural Gas. It has gone from specializing in fossil fuels to renewable energies, and its market price is now higher than that of BP.
Actor 2: Diversity, equity and inclusion
Although many companies have realized that diversity takes many forms, including gender and gender identity, race and ethnicity, sexual orientation, lived experiences, socio-economic status , disability, age, political and religious beliefs, there are surprisingly many that still do not have. And these companies risk being left behind.
Simply put, engaging with a wider range of perspectives in decision making has been shown to lead to superior business performance and competitive advantage. If companies don’t embrace the value of Diversity, Equity and Inclusion (DCI), they will soon face major recruiting challenges. There will be no positive role models. The shrinking talent pool will mean less innovation, and there will be no place to hide disgruntled employees online when they share their stories on Glassdoor, Indeed and Twitter. In short, they will be excluded.
Investors will run a mile. The message will be âchange or you won’t see our moneyâ. Bottom line: these companies – I bet you can think of one or two – are what we call male, pale … and stale.
Yet companies that embrace DCI from the boardroom see opportunities opening up. They can attract a much larger pool of talent, thus bringing in more ideas and innovation. Their diversity goes beyond simple images on a website and they become a much more attractive prospect for banks and investors.
DCI reduces corruption and increases the positive outlook for a business. By having more women on the team, companies are taking less risk and asking the tough questions. They focus as much on social and environmental issues as on financial issues. These companies are ready for the future.
Player 3: Cybersecurity
Data security should be the top priority for administrators as it affects most of their customers. Smartphones and the internet have made data incredibly valuable, but the problem is, this rich resource is ubiquitous and vulnerable.
It is easy for companies and boards of directors to be held to ransom by a cyber attack. The price to be paid, whether financially or through reputational damage, can be punishingly high. The sleepless nights experienced by directors and senior executives are mild in comparison!
Just look at some of the most prominent victims of the past 10 years. Yahoo (three billion hacked accounts); Alibaba (1.1 billion data points lost); LinkedIn (700 million users); Facebook (533 million users); Marriott International (500 million customers). The list is lengthened increasingly. There’s no reason to think your business couldn’t be next.
Every competent board should have as close an eye on company data policies as monthly financial statements. Data is an invaluable asset, helping companies refine their strategies to refine their margins, while AI and machine learning offer potential efficiencies and benefits that we have only started to scratch the surface.
Planks should start from the top. Stand up for responsible use of data and ask tough questions about how it is used. Invest in better security to protect it. Quickly identify vulnerabilities. Establish best practices. And don’t let IT fix the problem!