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How can good governance help address climate risk?
The TCFD’s focus on disclosures is welcome but reporting is only part of the story: it’s governance that dictates what actions underpin those disclosures. Good governance formulates business processes that create value. Through good governance, businesses will find the silver lining among the storm clouds of climate change in terms of identifying new opportunities.”
Though many corporate governance frameworks already include obligations around social or environmental concerns that would incorporate climate change, either explicitly or implicitly, now the dial is being turned up on what boards are expected to do. Inevitably, some companies are more advanced in pushing climate change up the board agenda, aware that the potential to outperform competitors or the market at large is a powerful reason to incorporate it into decision-making. Other companies may tend to take a more reactive approach to tackling risks in general and climate change particularly. Or they may underestimate its implications, unaware of how climate- related issues touch everything, from physical risks to property, to merger and acquisition activity, supply chain resilience and brand goodwill. Though the issues are complexand therewill be some potentially major decisions ahead, it’s worth noting that there are also many common-sense steps that can be taken to improve performance and satisfy directors’ obligations. “Re-inventing the wheel may not be necessary”, says Elks.
- Richard Elks, Partner, Clyde & Co, London
While good governance has always underpinned company performance, the pervasive and unpredictable nature of climate change risks, the more onerous reporting obligations and the complexity and long-term horizon of these issues make it more important than ever.
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