A New Dawn for Strategic Planning in the Boardroom

In today's rapidly changing world, businesses are grappling with unprecedented challenges. From climate change to technological disruption, the landscape in which companies operate is becoming increasingly complex. Yet, one of the most common complaints we hear from non-executive directors (NEDs) is the lack of time available during board meetings to acknowledge and discuss this complexity and its consequences. This is partly driven by climate not being seen as a priority and boards’ lack of knowledge, as can be seen in Figure 1. As we face existential risks resulting from human activity that has caused significant, and in some cases irreversible, damage to our climate and broader environment, this lack of focus on the long term is particularly troubling.

Figure 1: Key Barriers to Boards Addressing Climate-Related Risks

Source: CGI: How can we advance climate action on boards?

Tensions Between Short- and Long-Term Decision-Making

The crux of the problem lies in the tension between short-term and long-term decision-making, as the urgency of immediate business needs often overshadows the necessity to plan for the future. Boards can be paralyzed by this tension, as they navigate the difficult terrain of balancing short-term financial pressures with the need to invest in long-term sustainability. The reality is that addressing these long-term challenges will require short-term pain in some cases, particularly when investments may not yield immediate financial returns. This, understandably, is a hard sell to shareholders who are accustomed to prioritizing quarterly earnings over future resilience.

Emily Farnworth

However, this is not the case in every situation and so it is important to look not just at the opportunities to maximise the short-term wins but also to take the braver and more risky investment decisions which achieve benefits in the longer-term that may extend far beyond financial gain. One example is the, demonstrable progress  being made in the investment in and implementation of new technologies, as highlighted by Hannah Ritchie’s recent analysis, which shows that advancements in sustainable technologies are not just theoretical; there are ways to actively move ahead with roll out. For example, while we currently think of China and India as big emitters, their per capita coal emissions are a fraction of developed countries emissions in the past – and they have already peaked, as shown in Figure 2. Future technological advancements will decrease them even more.

Figure 2: Per Capita Coal Emission Over Time

Source: Forbes: A Sustainable Planet Is Within Our Reach

Businesses that can shift their focus from short-term, financial-driven decisions to a broader perspective that considers the opportunities not just for shareholders, but for employees, customers, communities, and the environment are likely to be the ultimate winners. Recent research in the Asia-Pacific region attests to this, where organisations with superior carbon management were found to have tangible financial returns and a significantly lower financial risk over a 20-year period. The challenge is not just about making more sustainable choices that work now; it's about fundamentally rethinking how businesses operate and make decisions now and in the future.

Integrating Longer-Term Risks into Business Strategy

At the heart of all these aspects lies the challenge of risk management. Many companies are so preoccupied with short-term risks — such as market volatility, regulatory changes, or competitive pressures — that they fail to see the bigger risks lurking in the background. These long-term risks, such as climate change, resource depletion, or social instability, have the potential to disrupt entire industries and render current business models obsolete. Yet, because their impact is not immediate, they are often overlooked in the strategic planning process.

Simon Glynn's work, as outlined in the paper "Theories of Change for Corporate Climate Action," provides valuable insights into how companies can navigate these challenges. Glynn argues that traditional approaches to decision-making are insufficient in addressing the scale and complexity of climate-related risks. He emphasises the need for companies to adopt more transformative theories of change that integrate climate action into the core of business strategy, rather than treating it as a peripheral concern.

Glynn's theories suggest that companies must move beyond incremental changes and embrace more radical shifts in their business models and operations. This requires a fundamental rethinking of how value is created and measured. He proposes that companies adopt a ‘systems thinking’ approach, which involves understanding the interconnectedness of various environmental, social, and economic factors, and how they impact long-term business success. It also involves developing strategy looking at impact, risk and opportunity together — not in a siloed way (see Figure 3). By doing so, companies can develop strategies that not only mitigate risks but also capitalize on the opportunities presented by the transition to a low-carbon and nature-positive economy.

Figure 3: Impact, Risk and Opportunity Aren’t Independent – They Reinforce Each Other

Source: Seeking Impact: Using theories of change to assess and guide corporate climate action

Another reason for the imperative to move beyond short-term thinking is the increasingly complex array of reporting disclosures — often referred to as the 'alphabet soup'. Alongside traditional financial metrics, boards need to grasp the financial implications of environmental and social impacts associated with their business. This also has knock-on effects in relation to what is considered 'true and fair' in a company’s annual report and accounts, as highlighted by a recent legal opinion from George Bompas KC which argues that directors must consider climate change to discharge their legal obligations.

This shift signals that the financial implications — positive or negative — associated with climate change and other environmental issues should be treated with the same rigor as any other financial obligation. This includes being audited and signed off by the board to demonstrate to shareholders and other stakeholders that the information contained in the company’s annual report reflects a ‘true and fair’ account of the business.

The potential for environmental and social commitments made by the company to be recognized as 'constructive obligations' — binding financial commitments based on a company’s promises or past practices — adds another layer of complexity. This means that companies may be required to recognize and account for their climate-related promises in financial terms, which could have significant impacts on their reported financial position.

As the expectations for transparency and accountability continue to grow, directors can no longer afford to treat sustainability as a separate issue. This integrated approach will not only ensure compliance with evolving legal standards but also help build trust with investors, customers, and other stakeholders who increasingly demand clear and honest reporting on environmental and social impacts.

Company Law Hasn’t Changed But the Context Has

This highlights just how crucial it is for corporate boards to understand that while company law may not have changed, the context has. The context in which these regulations are applied is dynamic, influenced by the growing body of climate litigation and the increasing scrutiny of corporate actions that have an environmental impact. This shift necessitates that boards stay informed not only about the current state of regulations but also about the broader context, including the latest advancements in climate science, policy trends, and technology.

Climate litigation is becoming a powerful tool for holding companies accountable for their environmental impacts. As such, boards must ensure that their strategic decision-making is informed by the most up-to-date science, policy, and technology. The evolving nature of climate science, for instance, has made access to cutting-edge data more widespread. No longer is this information the exclusive domain of scientists; resources like the Copernicus Climate Change Service provide real-time data that is accessible to a broader audience, including corporate leaders and policymakers.

In parallel, policy trends are also shifting. Global and national policies are increasingly geared towards more stringent climate action, and boards must keep pace with these developments to ensure compliance and to capitalize on new opportunities. The Inevitable Policy Response (IPR), for example, provides insights into policy trends that are expected to reshape industries as governments respond to the climate crisis.

Parting Thoughts

In the end, the tension between short-term and long-term decision-making is one of the biggest challenges facing businesses today. But it is also an opportunity. Companies that are able to navigate this tension and develop a strategic vision for the future will not only survive but thrive in the years to come. By establishing governance structures that allow for a more focused approach to both technical and strategic issues, and by shifting their focus from short-term gains to long-term sustainability, businesses can ensure that they are well-positioned to meet the challenges of the future and create value for all their stakeholders.

The time to act is now. By embracing transformative strategies, businesses can position themselves at the forefront of the transition to a sustainable economy, ensuring long-term success in an increasingly uncertain world.

Emily Farnworth is Director of the Centre for Climate Engagement at Hughes Hall, University of Cambridge. She has over 25 years of experience working with businesses, governments and non-profit organizations to support the transition to a low-carbon economy and has worked across multiple industry sectors to collaborate on solutions to tackle climate change. She was previously the Head of Climate Initiatives at the World Economic Forum, where she was involved in setting up the Climate Governance Initiative.