How to Set Up Effective Climate Governance on Corporate Boards
Guiding principles and questions
See guidelines on how to recognise that climate governance is an integral part of basic good governance.
To this end, the World Economic Forum, in collaboration with PwC, developed a set of principles to guide the development of good climate governance. To make these principles practical and operational, each one has been accompanied by a set of guiding questions that will help the company identify and address any gaps in its current approach to climate governance.
Here are the eight climate governance principles that can help businesses enhance their strategic and holistic debate and actions on climate change:
- Climate accountability on boards
The board is ultimately accountable to shareholders for the long-term stewardship of the company. The board should ensure effective risk management and take into account potential changes in the business environment that may arise as a result of climate change.
- Command of the subject
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.
- Board structure
In order to ensure the long-term effectiveness and efficiency of the company's operations, the board should determine the most effective way to integrate climate considerations into its structures and organisation.
- Material risk and opportunity assessment
The board should continuously assess short, medium and long-term climate risks and opportunities and take appropriate action based on their relevance for the company.
- Strategic integration
The board should ensure that climate change considerations and the management of associated risks and opportunities are integrated into the company's strategic planning and decision-making processes.
- Incentivization
Financial incentives to management should include measurable targets and performance indicators that are tailored to the individual company while ensuring its long-term performance.
- Reporting and disclosure
All climate-related risks, opportunities and strategic decisions should be disclosed consistently and transparently in the company's annual report (whether in the context of sustainability or non-financial reporting), with the aim of increasing the quality rather than the volume of reporting.
- Exchange
It is important that members of the board meet regularly, cooperate and exchange knowledge and experience with all stakeholders. This keeps the company constantly informed through a dialogue with investors, policy makers, decision makers and other stakeholders.