How boards can break barriers to effective net zero transition plans
How boards can break barriers to effective net zero transition plans
By Shelia Courtney and Dr Rory Sullivan
The transition to a low-greenhouse gas emissions and climate-resilient economy is urgent and will require fundamental transformations in business and finance. Policymakers globally increasingly expect the disclosure of transition plans as part of sustainability-related reporting. Transition planning is a strategically relevant activity, and it is therefore essential that boards are involved.
As we’ve covered in a previous blog, the Transition Planning Toolkit from Chapter Zero.
supported by Chronos Sustainability, is designed to support this critical undertaking. This week the final element of the toolkit was published: a guide to ‘Barriers and Enablers’
The guide identifies six key barriers that hinder effective oversight of transition planning:
1. Spending too much time on sustainability-related compliance and short-term disclosures and failing to prioritise strategic discussions on how to steer the business through the net zero transition.
2. The need for new knowledge and competencies specific to transition planning.
3. An uncertain landscape arising from scientific, macroeconomic and policy unknowns.
4. The tendency for unconscious cognitive biases to negatively affect decision-making – for example a tendency to repeat past behaviours even though they may not give the best outcome, or a propensity to undervalue risks because they seem distant today.
5. Organisational resistance to change – for example, changes to business processes or job functions.
6. The pursuit of a perfect plan, delaying the implementation of the transition plan.
The toolkit doesn’t just identify the inevitable barriers to transition planning, it offers practical suggestions on how to overcome these obstacles and is supplemented by two case studies from Metro Pacific Investments Corporation and components producer Tyman on the hurdles their boards have navigated.
Chronos’ View
Boards need to address climate-change with the same degree of rigour as they would any other issue that is a significant driver of business risk or opportunity.
This is not an easy task. The reality is that the low carbon transition is a highly complex issue with many macroeconomic, policy and civil society uncertainties. Boards will therefore need to show clear-eyed leadership and to think innovatively across long time horizons to ensure their business transitions effectively and in a way that preserves the long-term success of the business.
Identifying and discussing specific uncertainties can help navigate this ambiguity and we are seeing leading organisations use tools such as scenario analysis to identify the right actions to take. Such analysis might consider a future scenario where there is strong policy action supporting the net zero transition, and another scenario with limited policy action.
Boards should ask executives to present structured analysis that explores various climate change scenarios and tests the resilience of the business model and corporate strategy under each. Non-executive directors play a key role in challenging the underlying assumptions and in scrutinising the plans, as well as the risk and mitigation strategies, for all different scenarios.
Scenario analysis can help companies to identify and implement ‘no regret’ actions that can be taken even amidst uncertainty. These actions can help a company avoid missing out on easy wins, and ensure they do not lag behind as their industry advances.
Transition planning provides a framework for boards to explicitly assess climate-related risks and opportunities for their business and to develop workable strategies to respond and contribute to the net zero transition. The Chapter Zero toolkit offers valuable support to boards for the journeys ahead – whatever the barriers.
Notes:
1. The Chapter Zero Transition Planning Toolkit can be accessed at: https://chapterzero.org.uk/implement-the-transition/transition-planning-foundations/transition-planning-toolkit-briefing/
2. The Toolkit was produced by Chronos Sustainability with contributions from the Centre for Climate Engagement and from Chapter Zero and its members. The Toolkit was sponsored by the London Stock Exchange Group (LSEG) and the LSEG Foundation.
3. For more information about Chapter Zero, see https://chapterzero.org.uk/