As businesses increasingly recognise climate risk as a material financial risk to their operations, we at
Governance Ireland
are seeing our clients in Irish boards stepping up to play a pivotal role in driving organisational resilience and long-term success in a low-carbon economy.
This transition demands a strategic mindset, a keen understanding of regulatory requirements, and a commitment to sustainability and future-proofing.
Regulatory Conformation: Meeting Legal Obligations
When we look globally there are three key pieces of legislation which to our mind are shaping the landscape for climate disclosure and risk management:
- US Securities and Exchange Commission (SEC) Proposed Climate Disclosure Rule: The SEC's proposed rule, aligned with the Task Force on Climate-related Financial Disclosures (TCFD), mandates comprehensive disclosures across governance, strategy, risk management, and metrics and targets. Its worth noting that Irish boards with US-listed entities must ensure compliance with this evolving requirement.
- California Senate Bills (SB) 253 and 261: These California laws apply to both publicly listed and privately held companies with significant presence in the state. They mandate annual disclosure of scopes 1, 2, and 3 carbon emissions, including validation by independent third-party reviewers.
- EU's Corporate Sustainability Reporting Directive (CSRD): CSRD, the most expansive reporting framework, covers 50,000 EU and non-EU businesses with material operations in Europe. it will be a game changer and also worth noting that US companies with global supply chains will need to comply with CSRD or face potential disruptions.
Organisational Performance: Balancing Short-Term and Long-Term Goals
Irish boards are starting to go beyond regulatory compliance and adopt a strategic approach to climate risk management. We are recommending that Board who are reflecting on competitive advantage to start consider taking actions which could include:
- Articulating the Business Case for Climate Action: Boards should engage with management to understand the financial implications of climate change and identify opportunities to mitigate risks and capture emerging market trends.
- Aligning Climate Strategy with Organisational Goals: A clear climate strategy must be integrated into the company's overall strategy, aligning with its mission, vision, and values. This includes setting ambitious yet achievable targets and allocating resources accordingly.
- Sustainability and Future-Proofing: Boards should oversee the development of a comprehensive sustainability plan that addresses environmental, social, and governance (ESG) challenges and positions the company for long-term success in a changing world.
Moving from Compliance to Strategic Leadership
To maintain that compelling competitive advantage Irish boards should transition from a focus on regulatory compliance to a strategic mindset that prioritises sustainability and future-proofing. This may involve:
- Establishing a Strong Climate Risk Management Framework: Boards should establish a robust risk management framework that identifies, assesses, and prioritises climate risks across the organisation. This includes both physical and transition risks.
- Integrating Climate Risks into Financial Modeling: Climate risks must be integrated into financial modeling to accurately assess the company's financial resilience and potential impact on shareholder value.
- Encouraging Innovation and Transformation: Boards should foster a culture of innovation and transformation, encouraging the development of new products, services, and business models that align with sustainability goals.
Irish boards are at the forefront of the climate transition, navigating an ever more complex regulatory landscape and driving organisational resilience towards a low-carbon future. By embracing a strategic mindset and prioritising sustainability, Irish companies can emerge stronger and more competitive in a world that demands responsible and sustainable business practices.
