September Directors' Spotlight: Miranda Hubbs

 

MIRANDA HUBBS, CFA
Director, Nutrien Ltd., Imperial Oil, PSP Investments, and Canadian Red Cross 

 

Director Spotlight is a regular feature that provides an opportunity for a prominent director to discuss practical insights and critical developments on climate governance important for boardrooms. Chapter Zero Canada recently spoke with Miranda Hubbs, Corporate Director, on how boards are tackling climate change conversations and how directors can play an important role as new opportunities emerge in the climate transition.  

1. Boardrooms are structuring their oversight of climate change risks in different ways.  Can you comment on your experience with different structures and any important factors that may shape and influence the approach each board takes?  Do you have any examples you can share? 

Each of my boards oversees climate risks and opportunities in a different committee. We started with the same principle and questions: Oversight should be strategic and closely aligned with the company’s business model and value creation opportunities. What kind of risks are we facing? What is the materiality of those risks? Do we have the right people and systems in place? How are we holding management accountable? Do we have appropriate metrics in place? Robust risk management processes are designed to work holistically and not in silos which is critical because climate risks may have interdependencies with other risks and act as a risk multiplier to already identified enterprise risks. As the risks and materiality were assessed for each organization, different committees took on areas of oversight but ensured that deliberations are coordinated across committees. Common to all my companies, experts on various aspects of climate education are brought in for the full board.

At one company, we are faced with physical and transition risks and chose to expand the Safety, Health and Environmental Committee mandate to a Safety & Sustainability Committee which incorporated climate resilience in its oversight. Joint committee meetings have been held with Audit Committee to ensure accurate and consistent corporate disclosures. Additional meetings are held with the Human Resources and Compensation Committee chair to establish appropriate focus on remuneration. The Nominations and Governance Committee confirms that Directors have the necessary curiosity, mindset and skill sets for climate resilience oversight. At the full board, climate considerations have been integrated into enterprise risk management and inform the discussions on strategy, tying back to purpose. Communications and reputation, including how climate strategy is perceived by stakeholders, is also discussed at the full board.

At another company, the most material risks reside in the investment portfolio and the company’s reputation as an investor. Oversight is done within the Governance Committee to ensure that climate goals are clearly articulated, and public commitments are monitored against milestones. Stakeholder feedback is also monitored at this committee. The Investment and Risk Committee has oversight of how climate risks and opportunities are being assessed and priced, having regard to the company’s mandate. Human Resources and Compensation Committee evaluates the appropriateness of climate metrics in remuneration. The full board has oversight and input into the overall climate strategy. 

2. What are some recent climate-related issues and developments that Canadian boardrooms must pay particular attention to now and into 2023? 

Regulators and lawmakers have announced plans to bolster disclosure requirements. The Canadian Government, CSA, SEC, and ISSB are heading down the path of mandatory TCFD and GHG protocol aligned disclosure. These pending disclosure obligations will place a significant burden on a corporation’s collection of data, processes and internal controls. This transition to embed the reporting within operations and finance is akin to the Sarbanes- Oxley legislation of 2002, and will require a significant human and capital cost to achieve compliance. Leadership, guidance, tools and education will be critical to successful adoption.

The first stage of disclosures (2023 reporting year) appear to require attestations of operational emissions (Scope 1 and Scope 2). The far more complicated and complex measurement of Scope 3 emissions are anticipated a year later. Suppliers and customers will come under pressure to cut emissions as Scope 3 regulations come into force. Customers may also face higher costs for environmental compliance.

On another front, shareholders are increasingly probing the integration of climate-related risks into strategy and operations. Stakeholder communications will need to explain the trade-offs with investors of short term profits balanced against long term sustainable growth initiatives, decarbonizing supply chains, and new markets. 

3. Discussions on climate transition risks are abundant, but what about the opportunities? How can leading boards encourage management to take advantage of them? 

Boards can help to ensure that climate opportunities are captured by reviewing corporate strategy and focusing on long-term value. Once an organization has integrated climate risks into its enterprise risk management process, its mitigation and adaptation efforts may result in new incremental opportunities from cost savings (resource efficiency) to new end markets (new products and services) to risk reduction (supply chain resilience). There can also be human capital benefits—with the competition for talent, the labour force places a higher premium on an employers’ climate credentials. Cost of capital may be favourably impacted if you can reduce the risk your business is facing.

A larger area of opportunity is thinking beyond the company in terms of ecosystems. These step change opportunities can be achieved with partnerships beyond the traditional scope of the enterprise. The board can help assess how to proceed and how fast. How do we help others to transition for our commercial benefit? Two examples are: the Pathways Alliance to Net Zero, Canada’s six largest oil sands producers working together on an actionable plan to achieve net zero emissions by 2050; and Nutrien’s clean ammonia project which goes beyond helping to decarbonize the agriculture industry, but has broader applications in decarbonizing marine fuel markets. The company entered into a collaboration agreement with EXMAR to jointly develop and build one of the first low-carbon, ammonia-fueled maritime vessels.