Who’s the Climate Expert on Board?
Key findings
- With no consensus definition, investors may face challenges in consistently evaluating the climate expertise of directors. MSCI’s framework for assessing such experience may help address this challenge.
- Based on this framework, our analysis of climate expertise indicated that 35% of firms targeted for engagement by Climate Action 100+ had at least one climate expert on the board.
- Regionally, EMEA had the highest percentage of firms with at least one climate expert on the board (48%) compared to 36% in the Americas and 20% in APAC.
Many institutional investors with net-zero targets evaluate whether their portfolio companies have directors with climate expertise. There is no consensus, however, on how to define such expertise and companies often use different criteria to identify and disclose the relevant skills on their boards. This makes it difficult for investors to assess the climate expertise of directors in a consistent manner across a portfolio. Our framework for assessing relevant director experiences may help address this challenge.[1]
Climate-expertise criteria based on relevant experience
We defined a set of professional positions and associated experience that are indicative of a director's climate expertise. This includes relevant executive experience or select director qualifications, while excluding general statements in director biographies such as "climate experience" or "climate expertise." Using this approach, we considered a director to have climate expertise if their biography included at least one of our relevant positions or types of experience.
Criteria for directors' climate expertise
Type of experience | Definition |
|---|---|
Type of experience Executive-level experience | Definition Previous executive-level experience at a company where the biography includes a role that requires the development and/or application of technical climate-related expertise |
Type of experience Designations and qualifications | Definition Select professional designations/certificates or graduate-level academic qualifications related to climate change |
Type of experience Professional network | Definition Leadership role in a relevant climate-related professional or industry network/NGO |
Type of experience Public-sector expert | Definition Climate-change executive or expert in the public sector |
Type of experience Academic | Definition Academic in a climate-related, renewable/clean energy-related or environmental field |
Type of experience Consultant | Definition A climate or environmental consultant (principal, executive or partner) in a consulting firm or practice |
Data as of August 2024. Source: MSCI ESG Research
Climate experts at high-carbon-emitting firms
We used our framework to identify climate experts at 164 firms targeted for engagement by the Climate Action 100+ investor alliance because of their substantial greenhouse-gas emissions and potential for driving the net-zero transition.[2]
Only 4% of directors (78 out of 1,986) at these companies met our criteria for climate expertise based on their publicly disclosed biographies, as of August 2024.[3] [4] Half of the climate experts we identified had relevant executive experience. While this may reflect the profile of director candidates, it suggests that some nomination committees may prioritize current or former senior managers with operational experience when recruiting climate experts.
Climate experts with executive experience were the most common
This chart details directors' climate expertise by type and covers all 78 directors we identified as climate experts at the 164 Climate Action 100+ engagement focus companies that were also part of MSCI's Governance Metrics coverage. Percentages do not add up to 100% due to rounding. Where a director had multiple types of relevant experience under our framework, we classified them only under their primary type of relevant climate experience based on our review of their biographies. Data as of August 2024. Source: MSCI ESG Research
The climate experts we identified were spread out among the companies in our analysis. Approximately 35% of firms had at least one climate expert on their boards, while only 11% had more than one such expert.
Boards with multiple climate experts were few and far between
This chart details firms' climate expertise by number. No climate experts n=107, one climate expert n=39, two climate experts n=10, three or more climate experts n=8. Analysis covers 164 Climate Action 100+ engagement focus companies that were also part of MSCI's Governance Metrics coverage. Data as of August 2024. Source: MSCI ESG Research
Important regional differences in directors' climate expertise
According to our analysis, almost half (48%) of firms in EMEA had at least one climate expert on the board — higher than in the Americas (36%) and APAC (20%). This indicates that many boards of high-carbon-emitting companies in EMEA had direct and sustained access to climate expertise to inform their decisions.
Climate expertise from a regional perspective
EMEA n=52, Americas n=61, APAC n=51. Analysis covers 164 Climate Action 100+ engagement focus companies that were also part of MSCI's Governance Metrics coverage. Data as of August 2024. Source: MSCI ESG Research
Energy sector leading the way
Perhaps not surprisingly, the energy sector had the highest proportion of companies with at least one climate expert on the board (44%), compared to other sectors we analyzed.[5] In contrast, only 20% of firms in the consumer-staples sector had at least one climate expert on the board.
Share of boards with at least one climate expert across select sectors
Our analysis covers 164 Climate Action 100+ engagement focus companies that were also part of MSCI's Governance Metrics coverage. Sector analysis only covers sectors with at least 10 companies. Consumer discretionary n=14, consumer staples n=10, energy n=39, industrials n=23, materials n=40, utilities n=34. Data as of August 2024. Source: MSCI ESG Research
Directors' climate expertise varied widely, with consistent criteria lacking
Our criteria for defining the climate expertise of directors based on certain types of experience may help investors assess relevant board skills in their portfolios in a more consistent manner. Our analysis uncovered notable differences in the climate expertise on boards of high-carbon-emitting firms across sectors and regions, underscoring the importance of this assessment.
1 Florian Sommer and David Muirhead, “Director Climate Expertise and Climate Targets,” MSCI Research, March 2024. (Client access only.)2 These 164 companies included all Climate Action 100+ engagement focus companies that were also in MSCI's Governance Metrics coverage as of August 2024. See also: “Climate Action 100+ Signatory Handbook,” Climate Action 100+, June 2023.3 We considered company-disclosed director profiles, typically those included in the company's proxy statement. This is in line with the assessment of other areas of director expertise under our ESG Ratings methodology.4 This includes members of the unitary board of directors. For companies with a dual board structure, this includes members of the supervisory board and members of the management board.5 Sector classification based on Global Industry Classification Standard (GICS®), the global industry classification standard jointly developed by MSCI and S&P Global Market Intelligence.
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