The governance professional’s guide to better managing climate change risks
The Governance Institute of Australia has released guidance for company directors and other governance professionals that breaks down the complexity of identifying and disclosing climate change-related risks.
The guide provides guidance for reporting in accordance with the 4th edition of the Australian Securities Exchange’s (ASX) Corporate Governance Council’s Principles and Recommendations which, for the first time, identify climate change as a specific risk issue.
It also helps governance professionals to understand other reporting regimes, such as the Task Force on Climate-related Financial Disclosures recommendations (TCFD), and how stakeholder expectations around climate change have shifted.
“Directors, governance and risk professionals, C-suite executives have a responsibility to their shareholders, employees and other stakeholders to know the risks their organisations face.” said Governance Institute CEO Megan Motto when releasing the guide, titled Climate Change Risk Disclosure.
“With stakeholders more focused than ever before on climate change and sustainability, organisations that fail to address these issues will find the market will pass them by”.
Indeed, the Governance Institute’s Ethics Index for 2019 found that nine in 10 Australians want the Federal government to act on climate change and a similar number say organisations must also take action, even if it affects profits and job losses. Climate change moved from 10th position in the Index to be the third most difficult issue to navigate ethically, after immigration and euthanasia.
Australian Prudential Regulation Authority executive board member Geoff Summerhayes welcomed the report. “Climate risk should be an integral part of business strategy and risk management frameworks” he said.
The Governance Institute report provides practical assistance on reporting against Recommendation 7.4 (material exposure to environmental or social risks), now included in the 4th edition of the ASX Corporate Governance Council’s Principles and Recommendations.
It encourages entities to consider whether they have material exposure to climate change risk by reference to the TCFD recommendations and, if they do, make the disclosures recommended by the TCFD.
Australian regulators and standard setters have all strongly signalled that they will be monitoring entities’ management of climate change risk and have also named the TCFD Recommendations as a preferred disclosure framework.
The guide includes the following steps for getting started on TCFD reporting and other disclosures:
- Secure the support of your board and executive leadership team
- Integrating climate change into key governance processes, enhancing board-level oversight through audits and risk committees
- Bring together sustainability, governance, finance and compliance representatives to agree on roles
- Examine the financial impacts of climate risk