To really be greener, businesses need to look to the boardroom

Greenwashing^[1] scandals – the practice of misleading the public about what action a company or organisation is taking to protect the environment – are on the rise^[2]. As the climate crisis intensifies, greenwashing represents a significant obstacle to meeting global climate change goals^[3].

A recent example^[4] was the organising committee for the Paris 2024 Olympic and Paralympic Games, which vowed to design the most eco-friendly games in history by halving plastic waste. However, the commitment later sparked concerns of greenwashing^[5] because of the overuse of plastic bottles and cups^[6] by its sponsor Coca-Cola. For its part, Coca-Cola said it “supported ambitions” “to reduce single-use plastic and added that it had also provided soda fountains and glass bottles^[7] at the games to that end.

Other high-profile examples include the oil major Shell^[8], airlines AirFrance, Etihad, and Lufthansa^[9], and the bank HSBC^[10], all of which have had adverts banned in the UK because they were accused of misleading the public about the reality of their climate efforts.

Shell said it disagreed^[11] that the adverts misrepresented its environmental impact, while Etihad^[12] and Lufthansa^[13] changed the wording of their adverts after the ruling. HSBC^[14] said it would consider how best to engage its customers in the transition to a low-carbon economy.

All this begs the question: what on earth were the boards^[15] doing all this time? Board directors these days are under pressure^[16] to drive environmental change in their organisations. As part of their monitoring and advisory duties, they are also expected^[17] to ensure that corporate activities align with global climate change goals.

We recently examined^[18] a group of large US companies, looking at their carbon performance and how the make-up of their board affects the business’s action on the environment.

The effectiveness^[19] of a board still largely depends on its composition and the independence of its members.

Read more: Businesses that try to come clean about their impact on nature can end up concealing more than they reveal^[20]

A board of directors^[21] is a governing body that is elected by shareholders to oversee the activities of a company. It is made up of a mix of internal and external directors, bringing different perspectives to balance power and enhance strategic decision-making. The UK corporate governance code^[22] serves as the country’s blueprint for effective boards.

Co-opted boards^[23] are when directors are appointed after the chief executive of the company assumed office. Co-opted directors may play a pivotal role in the boardroom as they bring specialised expertise and experience. But at the same time, there are often concerns about their independence. They may not maintain the same level of impartiality and scrutiny over the chief executive’s activities to avoid "biting the hand that feeds them”^[24].

But it’s not straightforward. Some studies support a “dark” side of co-opted boards by showing that they encourage corporate misconduct^[25] and foster erratic decision-making^[26]. But other studies have shown a “bright” side as they provide more informed advice and bring unique expertise that lowers the cost of capital^[27] and facilitates innovation^[28].

The same contradictions can be found when it comes to environmental performance. While some researchers maintain that co-opted boards oversee fewer environmental controversies^[29] and improve waste management practices^[30], others point out their negative effects on environmental, social and governance (ESG) performance^[31] and leave them facing higher risks from climate change^[32].

Faced with these mixed findings, our research^[33] looked at co-opted boards to see how they are affecting the carbon performance of companies operating in industries^[34] where climate change impacts their economic value. We studied a sample of large US companies that were part of the Russell 3000 index^[35] (comprising around 98% of the country’s listed companies).

References

1. ^{^} Greenwashing (www.un.org)
2. ^{^} on the rise (www.reprisk.com)
3. ^{^} global climate change goals (unfccc.int)
4. ^{^} recent example (library.olympics.com)
5. ^{^} concerns of greenwashing (www.theguardian.com)
6. ^{^} overuse of plastic bottles and cups (web-archive.oecd.org)
7. ^{^} soda fountains and glass bottles (www.politico.eu)
8. ^{^} Shell (www.bbc.co.uk)
9. ^{^} AirFrance, Etihad, and Lufthansa (www.bbc.co.uk)
10. ^{^} HSBC (www.theguardian.com)
11. ^{^} disagreed (www.asa.org.uk)
12. ^{^} Etihad (www.asa.org.uk)
13. ^{^} Lufthansa (www.asa.org.uk)
14. ^{^} HSBC (www.asa.org.uk)
15. ^{^} boards (www.iod.com)
16. ^{^} pressure (www.theguardian.com)
17. ^{^} expected (pursuit.unimelb.edu.au)
18. ^{^} recently examined (www.sciencedirect.com)
19. ^{^} effectiveness (corpgov.law.harvard.edu)
20. ^{^} Businesses that try to come clean about their impact on nature can end up concealing more than they reveal (theconversation.com)
21. ^{^} board of directors (www.iod.com)
22. ^{^} UK corporate governance code (www.frc.org.uk)
23. ^{^} Co-opted boards (academic.oup.com)
24. ^{^} "biting the hand that feeds them” (www.tandfonline.com)
25. ^{^} corporate misconduct (www.sciencedirect.com)
26. ^{^} erratic decision-making (www.sciencedirect.com)
27. ^{^} cost of capital (www.sciencedirect.com)
28. ^{^} innovation (onlinelibrary.wiley.com)
29. ^{^} controversies (www.sciencedirect.com)
30. ^{^} waste management practices (onlinelibrary.wiley.com)
31. ^{^} environmental, social and governance (ESG) performance (onlinelibrary.wiley.com)
32. ^{^} climate change (www.sciencedirect.com)
33. ^{^} our research (www.sciencedirect.com)
34. ^{^} industries (www.thomsonreuters.com)
35. ^{^} Russell 3000 index (www.lseg.com)
36. ^{^} dpa picture alliance/Alamy Stock Photo (www.alamy.com)
37. ^{^} independent directors (www.directors-institute.com)
38. ^{^} large ones (www.climateaction100.org)
39. ^{^} Training programmes (carbonliteracy.com)
40. ^{^} transparent (www.tcfdhub.org)