Director Spotlight - Jessica Butts

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 Jessica Butts, Director, Pembina Institute and CEO of ESG Global Advisors. Here are the highlights of our recent discussion with Jessica about her insights on the biggest challenges for boards in the current climate as well as her thoughts on important trends in the climate governance space

As both a director and an advisor to organisations and boards in a variety of sectors, in today's current geopolitical climate, what are you seeing as the main challenges for organizations that are wanting to continue taking climate action?

Separating the signal from the noise is so important and challenging to do. Companies are always operating within the context of a number of macro factors, but the current hyper-politicization of ESG and related issues (including climate & DEI) is a particularly acute reality. 

At the same time, there are very real practical challenges that have evolved with the rapid maturing over the ESG landscape in recent years, that is separate though related to the politicization. For example, research and rating scores are a very real issue – methodologies can be opaque. While investors may have a nuanced view of them, for corporate directors that we work with, it can feel like getting a report card and immediate attention is then focused on the management and board. Staying strategic and nuanced is probably the biggest challenge for boards right now.

What can directors specifically do to keep moving progress forward in the boardroom?

On one hand, it’s challenging for boards to prioritize climate when there are acute risks like tariffs at play, but on the other hand it’s providing an opportunity for a bit of a level set within organizations. There were a number of companies that went out hastily making net zero commitments or reduction targets that they did not know how to achieve. At this juncture, directors who may not think that they have the depth of knowledge or expertise on the subject matter, still have a lot of value to bring by challenging assumptions. They should apply the same level of rigour to the climate discussion as they have been bringing to the audit discussion or discussion on the broader business strategy.

I know that companies and directors are concerned about things like Bill C-59, and the potentially negative impacts, but on the flip side, it’s forcing a level of rigour and maturity around these conversations. Or it should anyway.

Directors need to continue serving the challenge function by asking questions, particularly when they don’t know the answers. For example, questions like: What are we doing? How are we thinking about this? How are we navigating this? What are our investors and stakeholders asking? It’s coming back to first principles of financial materiality and asking what the risks are to the organization and how to effectively manage them, whether you are calling them ESG risks, climate risks, or something else.

Jessica, you touched on the anti-ESG pushback-- is that something that you are seeing as a pervasive issue for many boards?

It depends. Many are dealing with highly varied contexts and stakeholder expectations - for example, big banks that are simultaneously operating in California as well as the Rust Belt states. They are operating in one jurisdiction in which “thou shalt not say ESG or DEI” and in another in which you must have a TCFD aligned strategy and targets or else you're not doing business in the in the state. That’s one example- and similar dynamics are playing out globally right now. But if Canadian companies are increasingly going to have to diversify away from US capital sources, organizations must have a level maturity around integrating non-financial risks and opportunities into business strategy, which is beyond the benchmark in many parts of North America.

As long-term stewards of an organization, boards need to challenge management who may currently be saying “we need to walk back our strategy or targets because of xyz”, in response to short-term drivers that might be reactive to the politics of the day. Boards need to get to the bottom of the real underlying reasoning by asking what the drivers are and what the risks are on either side.

At the same time, we are not advising our clients to be unnecessarily way out in front of these issues right now unless that's core to the organization’s value proposition. That doesn’t mean ignoring the issues. Again, depending on the market you are looking to attract capital from as an organization, investors are going to have maturing expectations on ESG (or whatever you want to call it) – and that your organization has a strategy in place when it comes to core business risk management.

I certainly empathize with directors who are challenged with not being distracted by the noise - and what that means will be different for every organization. While the pendulum swung very far in one direction three to five years ago, it may be swinging just as far to the other direction right now, and you don’t want to be in a position three to five years from now when we may be back somewhere towards the middle and your organization has dismantled its internal capacity and market share. You will lose credibility with key stakeholders. So, it’s really important to be looking at these issues through beyond just the political lens, and through the risk lens as well.

What other trends are you foreseeing in the climate space?

There has certainly been a slowing of momentum in with the growing ‘middle’ group of organizations that may not be leaders in the space but are competing for capital and market share with larger peers. In our experience, many of these companies recognize the imperative but do not necessarily have the internal resources, capacity, or expertise on their board. I am seeing these organizations taking the breath that the current landscape is affording, and hopefully they use it to reset and use that financial materiality and pragmatism lens. Care and maintenance is the term I’ve been using this year. Think critically before dismantling, vs. just slowing down the build to respond to near-term turbulence.

Also, given our new Prime Minister and his past involvement with climate finance and the low-carbon transition (including having co-Chaired the Task Force on Climate-related Financial Disclosures TCFD), it’s foolish to think he’s going to do a 180 and that the feds are going to now greenlight every major project in the name of economic expediency alone.. But at the same time, he isn’t necessarily going to go full steam ahead on climate off the hop. This again speaks to the risks of fully dismantling in response to the short-term political environment. The question of how Canada will navigate the tradeoffs in our shared energy, competitiveness and clean growth imperatives will be front and centre in the near-term. Again, what is needed is a maturity in board conversations on these issues.

It will be interesting to see the extent to which institutional investors pick up the slack for policy and regulators. 5-10 years ago they came together to fill the gap that was a result of the dearth of regulation and policy and they were able to be very influential. Now maybe they will not be as out front as they were given prevailing headwinds. It’ll be really interesting to see how hard institutional investors continue to push their portfolio companies and what form it will take.

Full Biography

Jessica Butts

With over 15 years of experience, Jessica leads ESG Global and works with clients, colleagues, and partners to identify and strategically manage a range of material ESG issues and priorities. She leads engagements with Boards of Directors and Senior Executives across various sectors and markets – including financial services, energy and utilities, mining, resources, infrastructure, transportation, and retail. She is regularly called upon to speak publicly, provide strategic advice to organizations, and facilitate multi-stakeholder processes.

Areas of expertise include ESG and climate strategy development, climate risk management, ESG reporting and disclosure, and transition finance across North America and internationally. She is a member of the Board of Directors of the Pembina Institute, alongside several other advisory groups and sectoral initiatives in the Canadian climate change and ESG landscape.

Prior to joining ESG Global Advisors, Jessica led the Delphi Group’s Climate Change Strategy Practice, and was previously with the Climate Change and Energy team at the International Institute for Sustainable Development (IISD). She also spent time as a Balsillie Fellow with the Centre for International Governance Innovation (CIGI) and has worked for the Parliament of Canada. Jessica has a Master of International Public Policy degree from the Balsillie School of International Affairs, Wilfrid Laurier University along with a Bachelor of Public Affairs and Policy Management from Carleton University.