Evolving Risk Related to Climate Change Requires
Strategic, Decisive Action in the Boardroom
WASHINGTON, May 24, 2022
/PRNewswire/ -- The National Association of Corporate Directors
(NACD), the authority on boardroom practices representing more than
23,000 board members, today released the 2022 NACD Governance
Challenges—Climate Governance Report, which sheds
light on the perspectives of directors as the climate change
discussion and related requirements move center stage and provides
the best thinking on tools boards need to implement their future
climate goals.
For this report, NACD compiled top advice from leading experts:
Marsh McClennan, KPMG, Pearl Meyer,
and Sidley Austin LLP. These leading firms provided helpful
tools, tips, and frameworks to help boards establish and improve
their climate oversight risk and opportunity; utilize climate
scenario analyses to assess their performance in mitigating climate
risk; assess the role of executive compensation in evaluating and
structuring climate goals and initiatives; and address any legal
considerations companies may face regarding climate oversight.
Further, to gain insights into what directors are thinking about
climate, NACD recently polled directors in a survey that was in the
field from March 28 to April 21,
2022. The survey revealed that climate is not yet considered
a top priority by boards. About 47 percent of respondents say their
board considers climate change to be "an issue, but not a top
priority within the company," just under 19 percent state it is
"not a concern for our company," and only 9 percent see climate as
a "top priority being discussed at all levels of the company."
Among those that indicated that climate change discussions had
increased, 37 percent credited the increase to the relevance of
climate change to the long-term growth prospects of their business,
while 21 percent stated that disclosure requirements were the
primary driver. The majority of boards now consider climate not
only from the perspective of compliance but also focus on its
potential as a driver of opportunities for long-term value
creation. In fact, this transition will likely be a significant
growth driver for companies that are able and willing to adapt to
this new reality.
"Stakeholders expect boards to be accountable for implementing
effective climate oversight to protect the financial and long-term
success of their organizations," said Peter
R. Gleason, president and CEO of NACD. "NACD commissioned
this report to provide our members with a framework to establish
and implement appropriate climate goals and initiatives."
The NACD report offers expertise
- in four subject areas:
- Board Oversight of Climate Scenario Analysis (Marsh
McClennan): To meet rising expectations, companies will need to
assess their organization's performance under future climate
scenarios and establish processes for identifying, assessing, and
managing climate-related risks and opportunities. This will include
climate scenario analysis combined with establishing appropriate
governance to ensure effective oversight of the process. NACD
survey data suggest that only 15 percent of boards have recently
engaged in climate change analysis oversight, however, this
oversight can be viewed as an extension of prudent risk management
and board oversight into a new field of expertise.
- Framework for Board Oversight of Climate Change (KPMG):
The business implications of climate change continue to accelerate
and the proposed rule on climate-change related disclosure
promulgated by the US Securities and Exchange Commission (SEC) adds
a measure of urgency for public companies. A framework for board
oversight of climate change should focus on developing a plan for
board climate competence and oversight structure; actively engaging
with management to discuss climate-related risk, including
climate-based opportunities; assessing the company's strategy for
greenhouse gas emission goals; ensuring a holistic, structured
approach to climate-related communications; and setting
expectations for continuous learning and oversight.
- Evaluating, Structuring, and Communicating Executive
Incentives and Climate Issues (Pearl
Meyer): Organizations and the boards that guide them are
feeling intense pressure from investors and other stakeholders to
make meaningful progress against long-term climate goals. Climate
considerations and impact can vary significantly from one company
to the next, especially by industry, so a one-size-fits-all
approach is unlikely to be effective. However, we can learn from
companies in certain high-impact industries that have already been
addressing environmental goals in their compensation plans, where a
scorecard approach to tracking and measuring progress can be highly
effective.
- Legal Considerations for Oversight of Climate-Related Risks
(Sidley Austin LLP): Companies face a growing set of
expectations from employees, customers, investors, and regulators
with respect to how they incorporate environmental, social, and
governance (ESG) considerations into business decisions and how
they mitigate and disclose related risks. Today, board oversight of
climate-related risks is tied to oversight of strategy, risk
management, internal controls, ethics, and corporate disclosures.
In addition, with the overlay of federal securities laws and
regulations, public company boards also require attention to
compliance with disclosure obligations and oversight of corporate
disclosure with respect to climate-related matters.
For more information and to download your copy of the report,
visit here. To see data from the 2020-2021 NACD Trends &
Priorities of the American Boardroom report, click here.
About NACD
For more than 40 years, NACD has been on
the leading edge of corporate governance, setting standards of
excellence that have elevated board performance. NACD arms today's
directors with insights and education that drive their mission
forward, while preparing a new generation of boardroom leaders to
meet tomorrow's biggest challenges. NACD is a community of more
than 23,000 directors driven by a common purpose: to be trusted
catalysts of economic opportunity and positive change—in businesses
and in the communities they serve. To learn more about NACD,
visit www.nacdonline.org.
Contact:
Susan Oliver
soliver@nacdonline.org
703-216-4078
Shannon Bernauer
sbernauer@nacdonline.org
571-367-3688
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SOURCE National Association of Corporate Directors