Command of the (Climate) Subject
Author: Alenka Recelj Mercina, MSc, Head of Sustainability at NLB d.d. and Member of the Working Group of Chapter Zero Slovenia
The World Economic Forum has developed a set of eight principles to guide the development of effective climate governance. To make these principles useful and tangible, each of them is accompanied by a set of guiding questions. These questions help organisations to identify and address potential gaps in their existing climate governance strategies.
As Chapter Zero Slovenia is committed to ensuring that its board members pursue climate governance, we have produced a series of monthly articles explaining the eight climate governance principles, which are designed to increase their climate awareness, embed climate considerations into board structures and processes and improve navigation of the risks and opportunities that climate change poses to business.
The board should ensure that its composition is sufficiently diverse in terms of knowledge, skills, and experience to be able to effectively deliberate and take decisions based on awareness and understanding of climate-related risks and opportunities.
The great need today in every phase of our social, economical and political life is understanding. It has always been so, but today the need is even greater.
- by Charles R. Hook
Climate change creates complex situations with potentially very strong (negative) impacts on the environment, society and the economy. Climate (corporate) governance faces scientific, economic, and societal uncertainties in understanding the impacts of climate change across different time periods and also within and beyond the timeframes of current boards. This is why continuous learning and adaptation are key to effective climate governance.
Understanding of board directors:
- why climate change is happening,
- how it impacts the business,
- what is the impact of the company on the climate,
- what the impact of climate change will be on the business environment across different time frames; and
- how the business can manage it,
is key for taking informed business decisions in today's world. In case such knowledge is missing, it is important that board directors gain access to expertise as soon as possible.
Board directors can bring knowledge and new perspectives on climate risks and opportunities, while operational managers are expected to have better insight into how climate risks, opportunities, and impacts are managed in the organisation. Board directors also have a key role to play in this by raising awareness, encouraging, increasing responsiveness, and engagement of top management in the organisation.
Let's not forget that the goal is not only to understand the potential business impacts of climate change, but to integrate this understanding into corporate strategy and decision-making processes. Board directors must ensure that their composition allows for informed and nuanced debate and objective decision-making on climate issues. At the same time, they should organise themselves in a way that increases awareness and understanding of the potential impact of climate change on business:
- Regular evaluation
Regular evaluation of the composition of the boards should be carried out to ensure that they include directors with diverse perspectives, experience, and expertise, including in the fields of climate science, policy, and governance. This can be done through systematic and objective data collection and analysis, identifying strengths, weaknesses, patterns, trends, gaps, and opportunities for improvement.
- Education and training
Board directors should invest in regular education and training to keep up-to-date with the latest climate science, policy developments, and best practices in climate governance.
- Professional consultation
Board directors can consult climate scientists, policy experts, and business leaders who are at the forefront of climate action. This can provide valuable insights into the potential business impacts of climate change.
- Scenario analysis
Board directors can use scenario analysis to understand the potential impacts of different climate aspects on the business. This can help them identify potential risks and opportunities and develop strategies to adapt to and manage the impacts of climate change.
- Engagement with stakeholders
Engaging with stakeholders, including employees, customers, investors, and regulators, can provide valuable insights into their expectations and concerns about the company's response to climate change.
- Review of key board reports
Board directors should review key reports on governance, which provide additional qualitative and quantitative information on environmental, social, and safety issues and other challenges to the organisation's performance.
Knowledge on climate change, the complexity of legislation, (voluntary) standards, the increasing expectations of stakeholders, the climate goals of countries and companies, IT tools, and the volume of ESG data are growing by the day. Implementation of sustainability and ESG factors into the business model and managing climate change related risks, opportunities, and impacts requires diligent corporate governance.
Effective climate governance cannot be delivered from a single role in the company, but must be orchestrated from the top and should involve all key areas of the company. Board directors must integrate climate governance into existing corporate governance structures (boards, committees, working groups, etc.) and, where necessary, develop new structures to ensure adequate oversight and management of the area.
Effective corporate climate governance encompasses several key elements:
- The responsibility for climate-related risks and opportunities lies with the board directors, who should be equipped with the right tools to make the best possible decisions for the long-term resilience of their organisations.
- Climate risk management should be the responsibility of senior management, overseeing the company's climate change strategies and ensuring that they are integrated into the overall business strategy.
- Financial and non-financial incentives for employees should be aligned with the company's climate action objectives. This can help ensure that all employees are working towards the same sustainability goals.
- Businesses need to have effective processes in place to manage the risks associated with climate change. This includes monitoring legal requirements related to sustainability and ESG reporting.
- Climate governance must not be static. Businesses should continuously review and improve their climate strategies, taking into account new scientific knowledge, technological progress, and changes in the regulatory environment.
In conclusion, effective climate governance requires a strategic, holistic approach that involves all levels of the organisation and is aligned with the overall business objectives of the company. It is about making informed decisions that not only mitigate climate-related risks, but also seize the opportunities presented by the transition to a net zero economy.
Sources:
WEF_Creating_effective_climate_governance_on_corporate_boards.pdf (weforum.org)
The role of boards in climate governance - WTW (wtwco.com)
Developing Your Company's Climate Change Strategies | BCG
Start to implement governance for sustainability - Net Zero Guidebook (EN) (theclimatedrive.org)