Prompted by extreme weather, calls for corporate climate action have been growing in volume and intensity – from regulators, governments, investors and youth.
Within companies, the board of directors – as the most prominent corporate fiduciaries and ultimately accountable to shareholders – are responsible for overseeing effective management of climate-related impacts. They need to ensure climate risks and opportunities are centrally embedded in company strategy.
To do this effectively, however, directors need the right tools to make the best possible decisions to ensure the long-term resilience of their organizations.
Many - if not most - boardrooms are still grappling with how exactly to frame the risks and opportunities, and embed a viable transition strategy into their business models. In response to growing requests from corporations and investors, the World Economic Forum, in collaboration with PricewaterhouseCoopers, developed a set of climate governance principles. These principles are designed to:
- Raise awareness and promote board ownership of this topic
- Increase board-level understanding of current mandatory and voluntary requirements related to managing, mitigating and reporting on climate risks and opportunities
- Enhance the climate competence of executive and non-executive directors to enable informed investment decision-making, effective oversight of enterprise and systemic risk, as well as long-term strategic planning consistent with a zero-carbon economic system
The principles build on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). They are intended to help boards and senior management consider the quality of climate governance at the organizations they oversee and identify aspects in need of development or enhancement. And they should, ultimately, help companies improve both their climate governance practices as well as their TCFD disclosure guidelines – publicly supported by more than 50% of investors worldwide, who together hold almost $100 trillion of assets under management.
Rapid and widespread engagement
Since the launch of these principles at the World Economic Forum’s Annual Meeting in Davos this past January, various non-executive directors have set up national board networks or chapters to systematically roll out and test them. They are sharing good governance practices and challenges across industries and jurisdictions, while engaging with independent subject-matter experts to strengthen their understanding of the issues.
For example, the first director network focused on climate change was established in Italy, hosted by the national association of directors, the NED Community. It organises regular seminars, webinars and conferences, and works closely with its scientific and research partner Fondazione Eni Enrico Mattei (FEEM).
In Malaysia, the climate-dedicated director network is hosted by the Institute of Corporate Directors of Malaysia, supported by the Securities Commission Malaysia, Bursa Malaysia. In the UK, the Directors’ Climate Forum “Chapter Zero” is a network of almost 200 directors, hosted by Hughes Hall at the University of Cambridge. It organises monthly conferences and workshops and also has a Directors’ Toolkit members can use for self-assessment and to assist their boards as they confront this complex challenge.
Non-executive directors are also advancing this agenda in the Americas, Europe and Australasia – often in partnership with national director associations.
What is the World Economic Forum’s Sustainable Development Impact summit?
It’s an annual meeting featuring top examples of public-private cooperation and Fourth Industrial Revolution technologies being used to develop the sustainable development agenda.
It runs alongside the United Nations General Assembly, which this year features a one-day climate summit. This is timely given rising public fears – and citizen action – over weather conditions, pollution, ocean health and dwindling wildlife. It also reflects the understanding of the growing business case for action.
The UN’s Strategic Development Goals and the Paris Agreement provide the architecture for resolving many of these challenges. But to achieve this, we need to change the patterns of production, operation and consumption.
The World Economic Forum’s work is key, with the summit offering the opportunity to debate, discuss and engage on these issues at a global policy level.
Call to action
As there is high demand from corporate directors around the globe for further concrete implementation guidance for the principles, the World Economic Forum is deepening and widening the exchange of organized climate-related networks of boards of directors and experts over the coming years.
At the Sustainable Development Impact summit in New York, the World Economic Forum will discuss in depth how to put good climate governance into practice, to support corporate leadership on this crucial journey.
Ultimately, climate change should be part of the governance and stewardship duties of CEOs and directors, in the same way as any other issue prioritised at the board level.
No governance structure will ever control climate change. But a holistic corporate governance architecture will certainly enable a much easier systemic approach to climate risks and opportunities.
Financing Sustainable Development
The world’s economies are already absorbing the costs of climate change and a “business as usual” approach that is obsolete. Both scientific evidence and the dislocation of people are highlighting the urgent need to create a sustainable, inclusive and climate-resilient future.
This will require no less than a transformation of our current economic model into one that generates long-term value by balancing natural, social, human and financial conditions. Cooperation between different stakeholders will be vital to developing the innovative strategies, partnerships and markets that will drive this transformation and allow us to raise the trillions of dollars in investments that are needed.
To tackle these challenges, Financing Sustainable Development is one of the four focus areas at the World Economic Forum's 2019 Sustainable Development Impact summit. A range of sessions will spotlight the innovative financial models, pioneering solutions and scalable best practices that can mobilize capital for the the world's sustainable development goals. It will focus on the conditions that both public and private institutions should create to enable large-scale financing of sustainable development. It will also explore the role that governments, corporations, investors, philanthropists and consumers could play to deliver new ways of financing sustainable development.