Leading the climate-change agenda

Governments are occupied with issues of global health, conflicts and health and wellbeing of their populations. What is the role of organisations in addressing the most existential threat that all of humanity and nature face? Rising greenhouse gas emissions and biodiversity loss lead to the increase two main groups of risks:

• Physical threats to organisations associated with the increasing frequency of extreme weather.

• Transition risks associated with the transition to a low-carbon economy.

Governing bodies – in companies these are boards of directors – are responsible for governing the climate risk.

Why? First, because governing bodies are accountable for how the organisation addresses all types of risks. From that perspective, climate risk is yet another type of strategic risk.

Secondly, governing bodies have fiduciary responsibilities for taking decisions that are in the best interest of their organisations, and that includes the responsibility to identify, evaluate, govern, and manage climate risks in a transparent and systematic manner.

A third reason is that governing bodies, while being accountable to the organisation, must account for the organisation to relevant stakeholders in society.

The number of challenges that governing bodies need to address is already large, but it will continue to increase for the foreseeable future. In addition to climate change and other forms ecosystem degradation, governing bodies must also address strategic risks deriving from the continued increase in risks from the digital transition, macro-economic, social, and geo-political instability.

Many of these risks are related to each other and thereby become even more complex. For example, the war in Ukraine is not only generating terrible human suffering, but it also weakens the global basis for co-operation to fight climate change, while at the same time also increasing the transition from fossil fuel, as many countries are seeking to decrease their dependence on Russian oil and gas.

The timeframes that boards need to consider in responsible decision-making for organisational success and sustainable societal wellbeing outcomes is increasing. Making detailed plans for increasingly long periods is not the answer in dealing with this challenge.

To govern well and succeed in these in these high-risk and complex circumstances, boards would be well advised to apply the principles of ISO 37000:2021 Governance of organisations – Guidance, which is currently going through the final consultation phases in the process of being considered for the adoption as national standards in TT, St Lucia, and Jamaica. According to ISO 37000, governance of organisations is defined as the human-based systems by which an organisation is directed, overseen, and held accountable for achieving its defined purpose.

This definition of governance makes it clear that the heart of governance is the purpose of the organisation. The organisational purpose is defined in ISO 37000 as the organisation’s meaningful reason to exist. It is useful to note in this regard that the organisational purpose is the ultimate value the organisation intends to generate for specific stakeholders. A meaningful and well specified purpose guides the performance objectives and provides clear context for daily decision-making by relevant stakeholders.

The organisational purpose cannot be determined independently of the organisational values – which ISO 37000 defines as beliefs about desirable outcomes or actions defined by the organisation as good and important, to be explicitly or implicitly shared and applied by the organisation.

Organisational purpose and organisational value are key for governing through turbulent times because they provide a solution-independent north-star for the organisation and all of its stakeholders. A clear, powerful, and meaningful purpose with authentic and relevant values empower the organisation’s members and personnel, as well as other relevant stakeholders to take decisions in decentralised but aligned ways and this is one of the most crucial conditions for creating agility and resilience.

The foundational responsibility of governing bodies is to direct the organisation towards decisions where the purpose and the associated organisational value-generation model are key. In addition to that, it is necessary for governing bodies to set clear strategic outcomes, establish governance policies, engage with the strategic planning process and to steer the strategy.

The key for the coming era of high volatility and risk will be the dual focus that continuously asks and responds to two questions: what is our fundamental north star, our purpose, our meaningful reason to exist; and what are the outcomes and impacts the organisation is generating in the short and long terms?

Dr Axel Kravatzky is managing partner of Syntegra-ESG Inc., chair of TTBS/TC309 Mirror Committee, vice-chair of ISO/TC309 Governance of organizations, the co-convenor and editor of ISO 37000 Governance of organisations – Guidance. He is currently the project leader for ISO 37006 Indicators of effective governance. Comments and feedback that further the regional dialogue are welcome at axel.kravatzky@syntegra-esg.com