Companies with diverse boards perform better on climate action

Author Moonshot.news

Published on: 30/10/2021

As climate change becomes increasingly significant in the global corporate landscape, stakeholders and shareholders alike have begun to pay greater attention to how companies measure up in terms of climate action.

A new study conducted by BoardReady, Seattle based non-profit focused on board diversity, in partnership with consultancy A Bird’s Eye View examines the correlation between diverse boards and business action on climate change. The report titled “Does board diversity drive corporate action on climate change?” analyzed data from 159 global companies from 6 regions, identified by the Climate Action 100+ initiative as the largest corporate greenhouse gas emitters.

Overall, the study found that companies with diverse boards do better on climate than their less diverse counterparts. 

Highlights from the study:

• Less than half of biggest emitters have at least 30% board seats held by women.
• Only 26% of companies have at least 20% board seats held by racially diverse directors. 
• 36% of companies have a median age of less than 60 years old.
• Companies with more gender diverse boards are twice as likely to commit to net-zero GHG emissions by 2050, and develop a decarbonization strategy.
• Companies with more gender diverse boards are 25% more likely to have medium and long-term GHG reduction targets.

Companies with higher board gender diversity perform stronger on climate action

The study found that gender diversity has a significant positive correlation with company progress on climate in eight out of nine disclosure indicators. Companies whose boards have a median age under 60 years also performed significantly better in decarbonisation strategy and setting medium and long-term GHG reduction targets.

Organisations with higher board racial diversity performed about the same on climate change commitments than their less racially diverse counterparts, as did companies with a median tenure of less than 5 years vs 5 years or over, and director age span of over and under 30 years.

Also, the study suggests that companies with both board oversight through a committee and executive remuneration scheme are more likely to perform better on climate actions than those companies that only have partial schemes in place, and significantly better than companies with no scheme.

Boards are becoming more diverse – but they have some way to go

According to the study, 59% of European companies have at least 30% of board seats held by female directors, in comparison to only 37% of companies in North America. No Asian companies have 30% or more board seats held by women. 

52% of US companies have at least 20% of board seats held by racially diverse directors, however Europe and Asia have only 12% and 9% respectively.

48% of European and Asian boards are made up of boards with a median age under 60 years. 88% of North American boards have a median age over 60 years.

Key Takeaways

The data shows that there are several levers, such as greater board gender and age diversity, more effective climate governance and climate-linked remuneration, that companies can use to help improve their engagement on climate change across the spectrum of indicators. 

“As corporate leadership embraces the challenge of climate change, equally boards will need to evolve at pace to be more responsive to the transition needed and responsible for the actions of their companies.” Research found a more gender and age diverse board can help enable this transition.