As market players begin to pay greater attention to the impacts of climate change on businesses, many international organizations are publishing an array of frameworks, principles and guidelines to help companies and boards who wish to incorporate climate risk into their decision-making.
Among the most prominent, the World Economic Forum has established a Climate Governance Initiative and published a related set of eight guiding principles (Climate Governance Principles) to help foster effective climate governance on corporate boards.
The Climate Governance Initiative provides novel and effective ways to educate existing directors on climate risk to the extent relevant or desired, as opposed, for instance, onboarding a new director designated as a climate board expert.
This post provides an overview of WEF’s Climate Governance Initiative and its eight principles.
WEF Climate Governance Initiative
The WEF CGI aims to help non-executive directors understand and integrate climate change analysis into board decision-making. The CGI is organized by local country chapters. Chapters are currently present in Brazil, Canada, Italy, Malaysia, Russia, Switzerland and the U.K. France is scheduled to launch its chapter next month. Additionally, the WEF is in the process of setting up an international advisory board that will work closely with country chapters.
CGI chapters provide both networking opportunities for directors and offer workshops and seminars aligned with the Climate Governance Principles (described below). Workshops have in the past, included topics such as:
- Legal implications of climate change for non-executive directors;
- Risk Management; and
- Stakeholder engagement.
In addition, chapter websites provide toolkits for boards to ensure their businesses have the strategic plans in place to respond to climate change.
The Climate Governance Initiative counts on global participation. Deloitte, HSBC UK, pwc, Sberbank and Willis Towers Watson are among its public supporters. Additionally, each CGI chapter will often partner with local organizations to ensure that boards have access to latest information and thinking on climate governance.
Climate Governance Principles
In 2019, CGI launched a set of eight principles, the Climate Governance Principles, aimed at assisting boards across industries integrate climate change into decision-making and evaluate potential business risks posed by climate change. CGI articulates these principles as follows:
- Principle 1: Climate accountability on boards. Boards should be accountable for a company’s long-term resilience, including the potential impacts resulting from climate change. Boards should understand risks and opportunities relating to climate change and these should be incorporated into director duties.
- Principle 2: Command of the Subject. The composition of a board should be sufficiently diverse in knowledge, skills, experience and background to have sufficient awareness and understanding of the ways in which climate change may affect the business. Among other things, boards should consider the need for external experts, understand gaps in knowledge and establish a board succession plan that ensures continued climate change awareness.
- Principle 3: Board Structure. The board should determine the most effective way to integrate climate considerations into its structure and committees. Boards should consider whether having a dedicated committee tasked with climate/sustainability is appropriate.
- Principle 4: Material Risk and Opportunity Assessment. The board should ensure that management assesses the short-, medium- and long-term materiality of climate-related risks and opportunities. Among other things, boards should consider the assessment process and assessment purpose.
- Principle 5: Strategic and Organizational Integration. The board should ensure that climate change informs strategic investment planning and decision-making processes. Boards should consider whether climate considerations are incorporated into planning, business models, financial planning and other decision-making processes.
- Principle 6: Incentivization. Boards may want to consider including climate-related targets and indicators in their executive incentive schemes where appropriate.
- Principle 7: Reporting and Disclosure. Material climate-related risks, opportunities and strategic decisions should be consistently and transparently disclosed to stakeholders in financial filings. Boards should consider (i) where to disclose; (ii) how and what to disclose; and (iii) the type of disclosure (voluntary vs. mandatory) is most suited for the company.
- Principle 8: Exchange. Boards should be in dialogue with peers, policy-makers and stakeholders to ensure they are informed on current practices, legislation and climate-related risks.