The board is ultimately accountable for long-term stewardship of the company – it is therefore responsible for setting up governance mechanisms that ensure an appropriate level of climate change consideration at all levels of the organization – from the C-suite down.
Why is this imporant for the NED?
- Climate-related issues being firmly embedded into robust corporate governance is the key enabler for appropriate management of climate risks and opportunities. Failure to ensure that climate risks are adequately managed, might result in breach of directors’ duties.
- Regulators worldwide have begun to apply rising pressure on companies in carbon intensive sectors.
- Adjusting to the governance guidelines included in this chapter will allow for boosting operational efficiency and strengthening compliance and decision-making processes all together.
Robust climate governance. Are those mechanisms in place?
- The board is aware of the regulations imposed on the company in regards to corporate governance, due diligence and climate governance.
- The board members are aware of financial and operational benefits of integrating climate change into governance.
- The board has sufficient knowledge to make informed decisions regarding climate-related risks and opportunities, including development of green products and services.
- The board oversees the ESG/CSR strategy of the company, which includes climate-related goals. The strategy is evaluated at least once a year.
- Structure of the board and committees ensures that the board is being regularly updated on changes in risk identification and assessment, including climate-related risks, including climate-related risks in the value chain of the company (downstream and upstream).
- The board has defined its risk appetite, as well as short-, medium-, and long-term, based on portfolio structure and lifespan of assets.
- Remuneration incentives are in place for the board and executive management to include long-term goals, including climate-related goals
- There is a mechanism in place to engage stakeholders on a regular basis regarding ESG topics, including climate-related issues.
Climate governance constitutes an enabler for effectively addressing climate-related issues by cascading and supporting C-suite management work at later stages of climate change integration into company’s core business activity.
A mandate from the board helps to underline the importance of climate-related issues, ensuring that climate change considerations will be incorporated into the core business activity in a robust and coherent way.
The board should ensure that climate-related issues are embedded into its structure and committees, that its composition is diverse enough to be able to effectively tackle climate-related issues, and that the members of the board and the company’s management have sufficient access to knowledge and that incentives for board members and executive management to hold long-term perspectives are in place.
Introducing climate governance is often challenging for the boards, which find climate change competing with a plethora of other emerging risks and feel the pressure to deliver results exclusively in the short-term. This is especially true for listed companies, which are facing shareholder pressure to deliver satisfactory financial results on a quarterly basis . The issue has, however, been recognized by the leading guidance bodies, which have begun to author practical guidance for effective climate governance for the boards.