REVIEW OF FINANCIAL MARKETS
THE EXISTENCE OF AN ACTIVE CLIMATE MINDSET MODEL IN DIRECTORS’ OWN ACCOUNTS OF THEIR THOUGHTS AND ACTIONS
CLARE NICKSON HAVENS CONTINUES HER ANALYSIS OF WHAT MAKES FOR GOOD AND EFFECTIVE BOARDS IN THE FACE OF THE GROWING CLIMATE THREAT
In this second extract from her research at Cambridge Institute for Sustainable Leadership at the University of Cambridge, Clare Nickson Havens considers how financial institution directors account for their own behaviours when addressing the key challenges and opportunities of climate change.
For background to this article and details of references, please visit
cisi.org/rofm-feb22
TO WHAT EXTENT AND IN WHAT WAYS ARE BANK DIRECTORS USING AN ACTIVE MINDSET IN THEIR DECISIONS ABOUT CLIMATE RESPONSE MATTERS?
In order to answer the above research question, and to achieve my second and third aims – to test how the active mindset is working in practice in the climate response of bank board directors, identifying areas where practice can be improved, and test the validity of the model – I analysed the directors’ accounts for evidence of the components of the proposed active mindset model and identified additional
active mindset behaviours. These findings are detailed below.
THE SCANNING STAGE Below, I discuss each attribute in the scanning stage, ordered by frequency of response. Table 1 shows that the underlying attributes of the scanning stage exist and are being attended to by directors and gives examples of these attributes in practice.
Alertness All directors were alert to the many climate-related financial risks (Seega & Voysey, 2020), and the potential opportunities from banking what they perceive as the inevitably low-carbon future economy, exhibiting behaviours identified with an active mindset by CISL (2020). The value of being able to “see around corners” to pick up signals, as suggested by Teece (2021), was echoed in the directors’ accounts. There is a need “to be alert”, to “scan the horizon”, “have your antennae up for where new issues are emerging”, and “read the tea-leaves”, indicating that directors are not simply relying on management information but have a wider field of vision (Hambrick & Mason, 1984). Climate response was particularly associated with long-term, future-
TABLE 1: FINDINGS AT THE SCANNING STAGE OF THE PROPOSED ACTIVE MINDSET MODEL
Task-related attributes Alertness
Discovery processes Examples
• Awareness of risks from environmental sources • Need to be forward-looking
• Need to increase own knowledge • Know when you have enough information • Use internal and external sources • Use board interlock
Recognise opportunities Anticipate threats
• Leverage technology • Leverage relationship bankers
• Avoid becoming irrelevant • Aware of peers’ response • Risk to personal reputation
focused thinking by all directors, supporting the active mindset behaviours. Directors expressed eagerness to engage in this type of thinking: “what I love about thinking of climate change is the thinking about the future”, one director enthused, and some directors appeared frustrated at having to “overly dwell on historical data” such as financial statements, this being viewed as “completely irrelevant, because that’s from the strategic signals two years ago”. However, all directors understood that a solid understanding of current climate- related risk is necessary to create a pathway to a low-carbon future.
Discovery processes Although all directors were aware of the need to increase their own knowledge around climate change, increasing their human capital (Adner & Helfat, 2003), directors differed in their understanding of what constitutes an adequate response. One director expressed the need to “osmose as much external data [around climate change] as I can, to provide myself with some sort of foundation to properly analyse what’s delivered”. Others were frustrated by “the deluge” of information they receive on climate, stressing the importance of “relevant”, “material” information and of “knowing when you have enough information to make a decision”, supporting Simon’s (1956) ‘satisficing’, having sufficient information to make a decision in a scenario without an obvious optimal pathway (Huse, 2007). A director’s ability to satisfice could be influenced by higher perceived self- efficacy, an attribute of emotional capital (Andrade, 2015). Some directors commented that too much information leads to indecision, echoing Forbes’ (2005) observation that if an information search is too comprehensive, it can lead to anxiety and ‘paralysis by analysis’. In terms of ‘field of vision’ (Hambrick & Mason, 1984), directors gather
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