Boardroom diversity affects your carbon footprint, but it doesn’t affect how you think

Extreme weather events and record heatwaves are becoming the new normal. Most people are beginning to accept the seriousness of the scathing report from the United Nations Climate Commission and that climate change is the result of human activity.

In the business world, concepts such as CSR (Corporate Social Responsibility) and ESG (Environment, Social, Governance) have become part of everyday life.

ESG has become a benchmark for how sustainably a company operates. A low ESG score can damage a company’s trust and reputation in the market and make it difficult to obtain financing from banks and investors.

demonstrate social responsibility

This is why we are showcasing how more and more companies are going ‘green’.

Companies are replacing old gasoline cars with new electric vehicles. Shipping companies are building ships designed to run on hydrogen gas or ammonia instead of oil. Industry is finding new production methods that use less energy. Reducing greenhouse gas emissions such as CO2 can have a significant impact on ESG scores.

But what does it take for a company to make the right changes?

Ishwar Khatri utilized his Ph.D. At NTNU Business School, he conducts research investigating how the composition of a company’s board of directors influences its most sustainable competitive success.

“Is there a link between board diversity and carbon emissions? And how are emissions affected by the interaction of internal and external governance elements? That’s what we wanted to investigate,” Khatri said.

Previous research has already shown a correlation between board composition and a company’s performance on the ESG scale. Waste management, renewable energy use, and carbon emissions are influenced by board gender diversity.

And the more women you have on your board, the more transparent you will be about your company’s environmental impact.

Gender diversity does not reduce emissions

Currently, Khatri is analyzing data from 344 companies listed on the London Stock Exchange. This dataset covers 17 years from 2005 to 2021.

His findings provide some nuance about what kinds of diversity have an impact.

“We found that only diversity related to work and structure can effectively reduce carbon emissions,” Khatri said.

Diversity in age, gender, and nationality had no effect on emissions. Khatri said this is because demographic diversity can foster personal conflicts among board members.

As a result, boards become less efficient, Khatri said.

“What is important is the tenure and heterogeneity of how long directors have been in their roles. It is also important to consider whether directors have an internal role or come from outside the company. “A mixed board is important,” he said.

Educational background and background skills

At the same time, Khatri’s research shows that external governance, such as carbon regulation, should be imposed when companies have little diversity within these two dimensions. This means that internal governance and external governance are interchangeable.

“Shareholders should focus on functional competency and organizationally relevant diversity when composing boards, including education, background skills, years of service, and degree of independence from the company. may include,” Khatri said.

He stresses that this does not preclude considering the diversity of the membership in terms of gender, age and nationality.

“Such diversity may be useful in other contexts as well. Previous research has shown that demographic diversity is associated with the inclusion of different perspectives and new ideas. It can improve not only a company’s reputation in society, but also its creativity and innovation,” he said.

diverse culture

A US study shows that the higher the proportion of women on boards, the more renewable energy a company uses. However, many other studies have not found a similar correlation between board diversity and corporate social responsibility (CSR). In a separate study of 5,135 companies in 25 countries from 2002 to 2021, Khatri found that women’s influence depends on the social and cultural values ​​of the society in which the company operates. He discovered that, for example, there are cultural differences between Norway and the United States.

“Norway has a strong culture that values ​​the interaction between people, society and the environment. Companies are expected to be socially responsible. In countries with this type of culture, women on boards “Increasing the proportion of carbon dioxide emissions has a positive effect on factors such as carbon emissions,” he said.

In the United States, businesses operate in a culture that emphasizes profit maximization and short-termism.

“In such countries, we find that the representation of women on boards does not play a significant role. Here, the government rather has to intervene with external influences such as incentives,” Khatri said. said.