In our webinar on 14 June 2021, the Board Leadership Center was joined by Michael Wagemans, Head of Sustainability at KPMG in Belgium, and Wim Bartels, KPMG’s Global Co-Head of Impact Measurement, Assurance & Reporting and a Partner for Corporate Reporting at KPMG in the Netherlands, who set the scene for today’s conversation around climate change and climate risk in the boardroom. We then welcomed Véronique Toully, Vice-President and Global Head of Sustainability at UCB, who brought a more practical lens to the discussion by sharing UCB’s journey, the lessons they’ve learned and her advice for board members in engaging in a discussion on the topic. This article summarizes the key takeaways for boards.
There’s been a shift in mindset over the past few years. Environmental, Social & Governance (ESG) considerations have become more of a norm and companies are serious about doing things differently. Investors are pushing for responsible investment and more transparency, while new regulation and reporting requirements, such as the Corporate Sustainability Reporting Directive (CSRD), are forcing large companies to look more closely at their sustainability strategies. The pandemic has played its role too, accelerating the saliency of Environmental and Social issues in particular.
With a few exceptions – UCB being one of them – we were perhaps a bit slower here in Belgium than in some other countries in terms of the conversation and action around ESG. However, in the last 2 years we’ve seen quite a profound change, with business leaders – including at board level – stepping up, taking the public forum, making statements and executing on ESG challenges and opportunities.
Climate change is one part of this conversation. With business activity contributing significantly to climate change, there’s increasing public opinion that businesses have a moral imperative to address climate-related issues. Internally, this means assessing their own contributions to the climate emergency and setting ambitious goals to reduce them. Externally, this means engaging in pro-climate sourcing, distribution, awareness generation and advocacy.
One way for companies and boards to look at climate change and its associated risks is through the Taskforce for Climate-related Financial Disclosures (TCFD) framework.
The TCFD was founded in 2015 to help identify the information needed by companies, investors, and lenders to appropriately assess climate related risks and opportunities. While most companies were focused on what they could do to impact climate change, the TCFD looked at what the impact of climate change would be on companies.
Through this, TCFD identified the risks and opportunities that could impact a company’s revenues and expenses, the valuation of its assets and liabilities and its ability to secure capital and financing.
On the one hand there are the physical risks – both acute, such as extreme weather events, and chronic, such as rising mean temperature and sea level. We’re already seeing the impact of these in supply chain and production disruptions. There are also the transitional risks, such as policy and regulation (e.g. carbon pricing and taxes and reporting obligations), market risks (e.g. increased cost of raw materials), and reputational risks.
On the other hand, there are also new opportunities, including resource efficiency (e.g. reduced water usage), energy sourcing (e.g. the use of lower-emission sources of energy), new products and services, access to new markets, and resilience (e.g. resource substitutes and diversification).
At UCB, we’re progressing towards assessing systematically how we can leverage the needs of society to focus our R&D and business approach. We’re looking at sustainability as an opportunity to build a competitive advantage.
Based on these risks and opportunities, the TCFD issued 11 recommended disclosures focused on four areas:
As companies implement these recommendations, four key challenges that they face include:
The TCFD has been designed as a reporting framework, but it will prove its highest value when used as a strategic business framework to prepare for the financial impacts from climate change.
While the TCFD recommendations are a disclosure framework, they can also be a useful tool for starting your climate change journey as a board:
Our sustainability team is here to guide, review societal trends, foster system thinking within UCB, play an active part in setting targets and work on reporting and disclosures. The dialogue needs to be established with the business as concrete plans come from them and they are responsible for taking into account the impact we generate on society alongside financial performance in every decision.
Climate risk is a strategic issue. The role of a board in addressing this challenge can vary, so long as it doesn’t devolve into rubber-stamping the CEO’s decisions or second-guessing the executive team.
Giving the evolving complexity surrounding climate risk, boards should embrace a combination of three roles – that of supervisors, supporters and co-creators.
ESG should be embedded in your strategy. As strategy is a board responsibility, not a sub-committee responsibility, for us it made sense to keep sustainability at board-level. In this way it’s integrated into our strategic discussions and enables the sharing of expertise with the full board.
UCB’s purpose is creating value for patients with severe diseases – now and in the future – and while this remains at their core, they also understand that they need key stakeholders to work with them to make this happen. This includes not only their employees and shareholders, but their communities, keeping in mind the need to minimize their environmental footprint.
With this in mind, they performed a materiality assessment and determined that the “S” is their best opportunity to create value. This includes innovating and ensuring access to their medicines, ensuring the health, safety and well-being of their employees, and ensuring they’re representative of society by focusing on diversity, equity and inclusion. At the same time, they recognize that the environment has a significant impact on health, and therefore their responsibility to also focus on the health of the planet.
You can’t do everything; you need to focus.
Based on their materiality assessment they were able to set clear KPIs and targets around creating value for their key stakeholders. With regards to climate change and their environmental footprint specifically, this included setting Science-Based Targets to move towards carbon neutrality and having a concrete objective to reduce their water consumption and waste production.
When you put targets in place, you commit publicly and people in the organization start to move.
The conversation around climate change started already close to 10 years ago from employees who were interested in the topic and brought it to their managers, saying that UCB should be doing something on it. While it took a few iterations, the discussion was eventually brought to the executive committee for their support and resources. The executive committee decided to invest and since then the conversation has moved beyond climate change to sustainability overall and is complemented by top-down sponsorship.
Today, UCB’s governance structure around sustainability includes:
Investors have also had an important role in shaping UCB’s sustainability journey – most notably their reporting. For example, following a recent guidance from Blackrock (a 5% shareholder of UCB), they committed to report using the Sustainability Accounting Standards Board (SASB) standards in addition to the Global Reporting Initiative (GRI) standards. They have also started a TCFD assessment process as investors have clear interest in understanding the impact that climate change could have on companies. While they were previously looking at their business’ impact on the environment, now they’re looking the other way around.
Looking ahead we are expecting to see a better balance between financial and non-financial information in decision making, and consideration of non-financial impact coming naturally as part of our business approach at every level of the organization.
Sustainability is a journey and now is the time to act. The investments that companies make today will impact them for the next 15-20 years. This sense of urgency is felt at UCB and they’re taking action – are you?
The Board Leadership Center offers non-executive and executive board members – and those working closely with them (including CROs and Heads of Internal Audit) – a place within a community of board-level peers. It also offers access to topical seminars and more technical Board Academy sessions, invaluable resources, thought leadership and lively and engaging networking opportunities.
Compiled by Kimberly Rofrano, BLC Program Manager, email@example.com