Organizational buy-in of sustainability goals must go all the way to the top, including the board of directors, if those goals have any hope of being met. As ESG columnist John Peiserich explores, there are some nuances board directors should be aware of regarding greenhouse gas emissions.
Boards of directors are the lynchpin to effective sustainability programs. Effective sustainability programs can only be created and maintained when there is consistent support from the management team. Without this, rank-and-file employees will not buy into the sustainability program and, therefore, the program will struggle to be successful.
Not only does the board need to establish the appropriate sustainability program for the company, but it also needs to ensure that monitoring and verification procedures are in place to track the progress of the company along the sustainability journey.
Why should the board of directors care?
Individual board members have several fiduciary responsibilities related to sustainability that they owe to the organization and its stakeholders, including:
- Duty of care: Board members have a duty to exercise reasonable care and diligence in overseeing the affairs of the organization. This includes staying informed about the organization’s operations and making informed decisions.
- Duty of obedience: Board members have a duty to ensure that the organization complies with its legal and regulatory obligations.
- Duty to monitor: Board members have a duty to monitor the organization’s operations, including its financial performance and risk management practices.
- Duty to plan: Board members have a duty to develop and implement a strategic plan that ensures the long-term success of the organization.
These fiduciary duties are designed to ensure that board members act in the best interests of the organization and its stakeholders. By fulfilling these duties, board members can help to ensure long-term success of the organization and protect the interests of stakeholders.
If a board member fails to meet their fiduciary duty, they may individually face legal and regulatory risks, reputational risk and financial/liability risk. A board member who fails to meet these duties may be held personally liable for damages resulting from their actions or inaction. Breach may include failing to exercise reasonable care in overseeing the organization’s activities, such as by failing to monitor financial performance or risk management practices. Board members should also seek legal and professional advice when necessary to ensure that they are meeting their fiduciary duties appropriately.
To ensure that corporate actions are appropriate, board members should follow good management practices. Board members should have a thorough understanding of the organization’s business operations, strategy, risks and opportunities. This understanding will enable board members to make informed decisions and provide effective oversight.
Board members should establish effective governance structures, including clear roles and responsibilities, decision-making processes and accountability mechanisms. This will enable the board to oversee the organization’s activities effectively. Tracking processes allow board members to monitor the organization’s performance against its strategic objectives. By regularly reviewing financial and non-financial information board members can ensure that the organization is operating effectively and in line with its mission and values.
Risk management is a key function of the board. Board members should identify and manage financial, operational, and reputational risks. This includes establishing effective risk management programs, monitoring risk exposure, and taking appropriate actions to mitigate risks. Part of risk management includes compliance with legal and regulatory requirements, including financial reporting, environmental, social, and governance regulations.
While many board members do not consider the need to engage with stakeholders as a routine obligation, board members should engage with stakeholders, including employees, customers, investors and community groups, to understand their perspectives and concerns and to ensure that the organization is operating in establishing appropriate corporate missions and values, then tracking those missions and values.
By the beginning of next year, large companies in the EU or that do a substantive amount of business in EU countries will be required to issue sustainability disclosures under new rules. ESG columnist John Peiserich sorts through the details.Read more
The board and greenhouse gas verification
One issue a board of directors should care about is greenhouse gas (GHG) verification. Many countries and jurisdictions have mandatory reporting requirements for GHG emissions. Ensuring compliance with these regulations is important to avoid legal and financial penalties. Environmental issues are becoming increasingly more important to investors and stakeholders. Negative reports can damage the reputation of the organization and lead to negative publicity.
GHG emissions represent a significant regulatory and financial risk for many organizations. Understanding and managing these risks is important for ensuring the long-term viability of the business. Regulatory compliance costs, energy costs and other operational costs are all impacted by GHG emissions. Reducing GHG emissions can lead to cost savings and improved financial performance.
What is GHG verification?
As a result, tracking and reporting GHG emissions are more and more important at the board level. GHG verification is exactly what it sounds like — a verification that the data and reporting are correct. GHG emission reporting verification helps to ensure the accuracy and credibility of the reported emissions data. This is important for making informed decisions about climate change mitigation strategies and for demonstrating the effectiveness of GHG reduction programs. Additionally, many jurisdictions have mandatory reporting requirements for GHG emissions, and verification may be required to ensure compliance with these regulations.
Verification of GHG emissions data can help build confidence in reported data and can demonstrate a commitment to transparency and accountability. Investors and stakeholders are increasingly interested in the environmental performance of companies and organizations. GHG emission reporting and associated verification can help to identify areas where improvements can be made to reduce emissions and can provide valuable feedback for refining GHG reduction strategies.
What the board should expect: a common verification protocol – ISO 14064-3
The International Organization for Standardization (ISO) is an independent, non-governmental organization that develops voluntary, consensus-based standards — across more than 24,000 standards — covering management, manufacturing and technology. ISO Standard No. 14064 is specific to GHG emissions and is the ISO standard for quantifying, monitoring, reporting and verifying GHG emissions and removals. The standard includes three parts:
- Specification with guidance at the organization level for quantification and reporting of GHG emissions and removals.
- Specification with guidance at the project level for quantification, monitoring, and reporting of GHG emission reductions or removal enhancements.
- Specification with guidance for the validation and verification of GHG assertions.
Part 3 of the standard outlines the requirements for third-party verification of GHG emissions and removals. The verification process involves an independent auditor evaluating the GHG inventory and reduction program to ensure that it complies with the requirements of the standard. The verification process includes:
- Planning and scoping the verification.
- Reviewing the GHG inventory and reduction program.
- Conducting on-site visits and interviews.
- Reviewing and verifying the data and calculations.
- Issuing a verification statement.
The verification process provides assurance, which is defined as a limited or reasonable level of assurance depending on the scope, to stakeholders that the GHG reporting is accurate, complete and reliable. It also identifies areas where improvements can be made to further reduce GHG emissions and improve the program’s effectiveness.
Overall, using ISO 14064-3 for GHG verification provides a consistent and transparent process for evaluating GHG reporting. ISO 14064-3 is a widely recognized and respected standard for GHG verification, and it has been adopted by many organizations around the world. Some jurisdictions specify the reporting and verification protocols to be used and they may differ from ISO. Some jurisdictions have their own protocols. The Climate Registry General Verification Protocol is also widely used.
Regardless of the type of verification protocol used, it provides an established process that board members can rely upon to return a result which in turn confirms that corporate GHG reporting is accurate, complete and reliable — all critical to the board’s needs.