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Governments, regulators, shareholders, and others are making advancements in the push to net zero emissions, and they are expecting the same from companies. What do net zero pledges mean for a company and its strategic future? How should boards be thinking about these commitments? What is the board’s role in overseeing those decisions and monitoring progress?
Learn more about the board’s role in leading what’s next on climate change.
What is the board’s role?
Strong corporate governance is critical to ensure accountability for net zero is driven throughout the organization, starting from the top. Net zero commitments should be incorporated into the company’s strategy, and directors need to ensure that it is as part of their oversight responsibilities.
The Task Force on Climate-Related Financial Disclosures (TCFD), separates climate change risk into three categories. Those are physical risks, transition risks, and liability risks. Identifying risks into these categories and incorporating them into enterprise risk management (ERM) can be an important first step.
The board may want to consider the following:
Which risks have management identified (physical, transitional, and liability)?
Has management included climate change risks in its ERM? What are the plans to mitigate these risks?
How has management assessed and prioritized the risks?
...read more in the report.
Sixty-five percent (65%) of directors think climate change should influence strategy. Now is the time to work through the particulars of incorporating climate change into the company’s strategic goals—when the topic remains top of mind for investors focused on the long-term viability of their portfolio investments.
The board may also want to consider the following:
Has management set a net zero vision that follows a science-based approach?
Does management have the talent, technology, and processes in place to achieve its climate goals?
Has management modeled the implications of climate change on operations and the related costs associated with decarbonization?
...read more in the report.
The board needs the right governance structure in place to execute on its oversight of climate change implications. The board will need to assess who—a specific committee, the full board, or a mix of the two—should be responsible for overseeing climate change risks.
The board may also want to consider the following:
How often do ESG issues, and specifically climate change, appear on the board’s agenda?
Who from management is (or should be) reporting to the board on the topic?
Does the board have the necessary skills and knowledge to oversee climate change implications? If not, which experts or consultants does the board need to engage?
...read more in the report.
With disclosure comes the opportunity for a company to tell its story. Companies that have made a net zero or other emissions commitment will want to provide transparent and balanced reporting on how they are progressing towards their net zero ambitions, including business transformation and progress against KPIs (including actual emissions reductions achieved). This promotes accountability for transformation, drives progress, and informs relevant stakeholders, including investors.
The board may also want to consider the following:
Has management performed a gap analysis between the information they want to disclose and the information they currently have available?
What processes and controls are in place to ensure that the information being disclosed is accurate and reliable?
Are different technology solutions needed to capture data and help track information?
...read more in the report.
In conclusion
Public pressure is spurring companies to move from ambition to action. As companies set goals and put plans in place to achieve those targets, board oversight will be critical in ensuring that companies consider the risks and opportunities, and the right path forward. Missing targets or not making the committed progress could lead to reputational risk or the company could experience a reduction in available capital or declines in market valuation.
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