To become truly green, companies need to look to the boardroom

Greenwashing scandals (misleading the public about what companies or organizations are doing to protect the environment) are on the rise. As the climate crisis intensifies, greenwashing is becoming a major obstacle to achieving global climate goals.

As a recent example, the organizing committee for the Paris 2024 Olympic and Paralympic Games has vowed to halve plastic waste and plan the most environmentally friendly Games in history. However, the initiative later raised concerns of greenwashing due to sponsor Coca-Cola’s excessive use of plastic bottles and cups. Meanwhile, Coca-Cola added that it “supports the ambition to reduce single-use plastics” and had also provided soda fountains and glass bottles at the match to that end.

Other high-profile examples include oil majors Shell, Air France, Etihad and Lufthansa airlines, and bank HSBC, all of which have been accused in the UK of misleading the public about the reality of tackling climate change. Advertising is prohibited.

Shell said it did not agree that the ad misrepresented its environmental impact, but Etihad Airways and Lufthansa changed the wording of their ads after the ruling. HSBC said it would consider how best to involve its customers in the transition to a low-carbon economy.

All of this begs the question, what on earth has the board been doing all this time? Boards these days are under pressure to drive environmental change within their organizations. As part of its oversight and advisory mandate, it is also expected to ensure that corporate activities are aligned with global climate change targets.

We recently studied a group of large U.S. companies to find out how carbon emissions performance and board composition influence corporate behavior on the environment.

The effectiveness of the board remains highly dependent on its composition and the independence of its members.

The board of directors is a governing body elected by shareholders to oversee the activities of a company. Comprised of a mix of inside and outside directors, we bring diverse perspectives to balance power and enhance strategic decision-making. The UK’s Corporate Governance Code serves as a blueprint for effective boards in this country.

A merged board is when directors are appointed after the company’s chief executive officer takes office. Recruited directors may play an important role on the board because they bring expertise and experience. But at the same time, there are often concerns about their independence. They may not maintain the same level of impartiality and oversight over the activities of chief executives in order to avoid “biting the hand that feeds them.”

But it’s not easy. Some studies support the “dark” side of bought boards, showing that they encourage corporate fraud and encourage erratic decision-making. However, other studies point to the “bright” side of providing unique expertise that provides more informed advice, lowers the cost of capital, and fosters innovation.

The same contradictions can be seen when it comes to environmental performance. Some researchers argue that adopted boards reduce environmental controversies and improve waste management practices, while others argue that boards of directors reduce environmental, social, and governance (ESG) This will negatively impact their performance and expose them to higher risks from climate change.

Faced with these mixed findings, our study aims to investigate how climate change is affecting the carbon performance of companies operating in industries that impact economic value. We investigated the board of directors that was hired. We studied a sample of large U.S. companies included in the Russell 3000 index (comprising approximately 98% of publicly traded U.S. companies).

We found that the substrates employed reduced the greenhouse gas emissions intensity of these industries. No effects were seen in other industries where corporate values ​​are unaffected by climate change. However, it also shows that this relationship changes over time and that emissions may start to decline more slowly when there is R&D investment.

Although board recruitment may help improve an organization’s carbon performance, its presence also appears to be associated with overinvestment in inefficient R&D projects. This could include poorly designed carbon reduction programs or unproven renewable technologies. This means they may end up approving projects that don’t actually align with the company’s financial and ESG goals.

3 ways companies can become more environmentally friendly

The first step is to establish an independent organization with no ties to the CEO, other executives, or key stakeholders to provide objective oversight and hold management accountable for their environmental actions (or inactions). Priority should be given to appointing directors who are

Regulators have a role to play in establishing clear guidelines on how boards are constituted and their independence. Investors, especially large investors, can also use their influence through resolutions and votes to encourage further action on climate change.

The second step is to appoint directors with climate change expertise to ensure boards have the skills to monitor the impacts and dependencies of climate change on the organization. Director training programs can also help build climate change literacy on boards.

The final step is to increase transparency in the roles and responsibilities of directors overseeing climate change efforts.

To demonstrate a company’s commitment to tackling climate change and building trust with stakeholders, provide clear carbon reduction targets and details on how environmental expertise is integrated into decision-making annually. Must be disclosed in the report.

These three steps will help ensure that the board you hire actually drives climate action. Prioritizing impact over image is critical to combating greenwashing and building a more sustainable future.

This article is republished from The Conversation under a Creative Commons license. Read the original article.