Climate action starts at the Board
The pandemic has made leaders across all facets of business reconsider their role when it comes to the societal issues we face, including the responsibility to act, when it comes to climate change. Now more than ever, Boards of Directors have a duty to recognize risks and opportunities related to climate change, guide their executives to build and execute strategies, and ultimately play an active role in informing stakeholders of the company’s climate response. Beyond duty, it comes down to purpose: companies must be intentional about ensuring our world is protected for generations to come.
Board action leads to climate opportunity
At Deloitte, backed by our WorldClimate initiative, we advise Boards to engage with management to understand a company’s climate-related risks and opportunities, evaluate existing governance structure for gaps, keep pace with the standards and framework landscape, and engage the audit committee given the likely oversight on climate-related risk and investment management.
Deloitte’s 2020 report The atmosphere for climate change disclosure aims to ensure our clients’ Boards and audit committees are aware of the increased focus being placed on climate change disclosures and how best to exercise their oversight role to respond to this focus. In the report, we include a series of questions that Boards should consider to ensure they are adequately and appropriately governing a company’s response to climate change. For example, Boards should ask whether management has undertaken any form of scenario analysis to evaluate climate risk across different time horizons, as well as whether the company understands what types of disclosures its stakeholders seek.
Boards should also consider four thematic areas of climate-risk disclosure. These include:
- The organization’s governance around climate-related risks and opportunities
- The actual and potential impacts of climate-related risks and opportunities on the organization’s business, strategy, and financial planning
- How the organization identifies, assesses, and manages climate-related risks, and
- The metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material.
While these disclosures can feel daunting for an organization, this level of transparency and clarity can help an organization move the needle on its climate action plan, motivate and mobilize its people to join greener forces, and retain the trust of its stakeholders. It’s also what our world needs.
Climate change brings financial risks and opportunities
Failing to act to make your organization more resilient to climate change can have a significant impact the bottom line. The World Economic Forum (WEF) estimates that by 2100, the potential financial losses arising from climate change could run up to $43 trillion. Climate change has also created interesting opportunities for businesses to thrive. The WEF estimates that climate change will generate investment opportunities worth up to $26 trillion between now and 2030.
However, climate change often remains a low priority at the Board level. In a 2019 Deloitte survey of 1,200 European Chief Financial Officers, few companies had a governance and steering mechanism in place to develop and implement comprehensive climate strategies.
It’s not simply about box ticking, but rather about how the organization understands the impact of climate change and is making progress on its commitments. By demonstrating real action against climate change, an organization can differentiate their brand, strengthen trust with their stakeholders, and safeguard the organization’s future by finding new and innovative ways to be profitable while also operating sustainably.
Poor governance has significant ramifications
With risks and opportunities like this, it’s no surprise that an increasing number of stakeholders including investors, suppliers, and partners are looking for evidence of action.
The ramifications of poor governance and disclosure crystalized for many in 2020 when Larry Fink, CEO of Blackrock (the world’s largest investment firm), wrote in a letter to CEOs, “..we will be increasingly disposed to vote against management and Board Directors when companies are not making sufficient progress on sustainability-related disclosures and the business practices and plans underlying them.”
A strategic imperative for a greener world
Boards across organizations should elevate climate change as a strategic imperative for their organization and be courageous in their governance role to guide strong climate action. At Deloitte, driving responsible climate choices within our organization is a top priority on the Board’s agenda. We are committed to achieving our ambitious WorldClimate goals, including net-zero greenhouse gas emissions by 2030, because it’s the right thing to do for our business, our communities, and our planet.
What will your Board commit to?
Insightful read.