Maria Castañón Moats is Leader and Mira Best is Technology Impact Leader at PricewaterhouseCoopers LLP. This post is based on their PwC memorandum. Related research from the Program on Corporate Governance includes The Illusory Promise of Stakeholder Governance by Lucian A. Bebchuk and Roberto Tallarita (discussed on the Forum here); For Whom Corporate Leaders Bargain by Lucian A. Bebchuk, Kobi Kastiel, and Roberto Tallarita (discussed on the Forum here); Restoration: The Role Stakeholder Governance Must Play in Recreating a Fair and Sustainable American Economy—A Reply to Professor Rock by Leo E. Strine, Jr. (discussed on the Forum here); and Corporate Purpose and Corporate Competition by Mark J. Roe (discussed on the Forum here).
Corporate boards are experiencing the impact of climate change on multiple fronts. Mounting pressure from regulators, investors, shareholders, consumers, and their workforce is forcing companies to rethink their carbon emissions. Worsening droughts, fires, floods, and storms have prioritized the need to focus on the health of our communities and ecosystems. Beyond social responsibility, there’s also economic cost tied to each of these challenges.
Studies have repeatedly shown that companies that take climate change risks seriously report better financial results and post stronger stock market performance than their peers that do not. As a newer focus area, shareholders are increasingly probing the integration of climate-related risks into strategy and operations, and are allocating capital to help companies increase the sustainability of their supply chains. Regulators and lawmakers are similarly responding to this sentiment with plans to bolster disclosure requirements.
Hundreds of companies worldwide have made “net zero” pledges to balance their greenhouse gas emissions with the amount they remove from the atmosphere. However, such pledges may not be taking into account the emerging issue of emissions from company supply chains. Greenhouse gas emissions from a company’s supply chain can be 5.5 times higher than from its enterprise operations, according to the Climate Disclosure Project. Although difficult to track, focusing comprehensively on the end-to-end supply chain should be a priority for companies that truly want to mitigate their climate impact.
Fortunately, advanced technologies are emerging to help companies address their carbon footprint. Blockchain and artificial intelligence technologies are powerful tools for companies that want to tackle not just their own climate impact but those caused by suppliers, transportation networks, and warehouses. It’s important for board directors to understand how these technologies work in order to best fulfill their role in overseeing corporate strategy—particularly as it pertains to climate risk.