A recent article looked at How Directors’ Past Experiences Shape Corporate Climate Policies.

It’s written by Sehoon Kim, Bernadette A. Minton and Rohan Williamson, based on their academic research into the premise “that salient and adverse past experiences, such as witnessing the destruction and suffering caused by major natural disasters, can mold individuals’ prosocial preferences. Corporate directors who have such “Abnormal Disaster Experiences” (DADEs) may develop a stronger desire to mitigate the likelihood of future catastrophic events, including those exacerbated by climate change. Consequently, these directors might leverage their influence to push the firms they govern towards more environmentally responsible practices, primarily for societal benefit.” They tested the hypothesis using “a comprehensive dataset linking directors’ past employment locations with county-level natural disaster data from the Spatial Hazard Events and Loss Database for the United States (SHELDUS) (identifying) abnormal disasters as climate-related events causing property and crop damage exceeding $1 billion in 2022 dollars (then matched with) the current board composition of publicly listed U.S. firms.” Here’s some of what they found:

• The core findings reveal a statistically and economically significant negative association between the presence of DADEs on a board and the firm’s scope 1 and 2 GHG emission intensities. For instance, an increase of one DADE per ten directors is associated with a 3% reduction in GHG emission intensity. Furthermore, firms with more DADEs are significantly more likely to assign climate policy responsibilities to the board, set explicit emission targets, and provide climate-related incentives to management.
• Crucially, our study investigates the mechanisms through which DADEs exert their influence. We find that the impact on GHG emissions is primarily driven by DADEs who serve on governance, audit, or ESG/sustainability committees. In contrast, DADEs on compensation, finance, or risk committees do not exhibit such a strong effect on firm emissions. This distinction provides compelling evidence for the prosocial preference channel, suggesting that directors are more likely to channel their disaster-informed values through committees with broader stakeholder-oriented objectives rather than those focused solely on financial risk and performance. Moreover, the results indicate that male DADEs are the primary drivers of these effects, a finding that contrasts with other research suggesting female directors are quicker to update climate beliefs. Our study also highlights that independent directors with disaster experience are more influential in reducing emissions than non-independent directors, mitigating concerns about managerial influence.
• Further bolstering the prosocial preference interpretation, our research demonstrates that the accumulation of disaster experiences over directors’ careers is far more impactful than recent experiences. Directors with a longer history of exposure to abnormal disasters have a significantly greater effect on reducing firm emissions. Additionally, the effects are concentrated among emission-intensive and larger firms, suggesting that DADEs are targeting their influence where it can have the most significant societal benefit. Our study also finds that the results are driven by abnormally devastating disasters exceeding $1 billion in damages, and not by smaller, less salient events. Importantly, the impact of DADEs on corporate emissions does not appear to be merely a response to increasing societal attention to climate change, as the effects did not significantly strengthen after the 2015 Paris Agreement and the formation of the TCFD.
• Finally, and perhaps most reassuringly for shareholders, we find no evidence that having more DADEs on the board improves or hurts firm financial performance. This suggests that directors with past disaster experiences are not pursuing emissions reductions at the expense of shareholder value, but rather seeking to balance financial and prosocial objectives.
• In conclusion, our research provides robust evidence that the lived experiences of corporate directors, specifically exposure to abnormally devastating natural disasters, shape their prosocial preferences and subsequently influence corporate climate policy. Our findings underscore the enduring impact of formative experiences on individual values and their translation into corporate governance, offering valuable insights for understanding the motivations behind corporate sustainability initiatives and the composition of effective boards in an era of increasing climate concern.

That sounds like an awful lot, it must be said, to have extracted from a single study, and it might be appealing to hear from some peer reviewers, focusing for instance on whether the findings are indeed ones of causation rather than correlation; that is, whether corporations predisposed to be active in this area might be inclined to choose like-minded directors who then largely rubber-stamp what would have happened anyway (the study did take that into account, for example by distinguishing between independent and non-independent director influence, but still, one wonders). Given the vast complexity of organizations, it seems intuitively unlikely that the fine-tuning laid out in the summary (for example the reference to directors balancing financial and prosocial objectives) can be primarily attributed to individual board members, but intuition isn’t everything. And as noted, other studies have generated opposing findings in some respects.

All of that aside, the findings shouldn’t be too surprising in that one only hopes a corporation will benefit from the “lived experiences” of those exercising governance over it. Of course, lived experiences can poison as well as expand one’s worldview; given the recent cultural coarsening and upsurge in climate denialism, one wonders whether an update of the study (which was based on datasets up to 2022) might already generate declining results…

The opinions expressed are solely those of the author.