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Boards should be aware of, and mitigate for, impacts of climate change risks

All boards should ensure they are aware of the potential impact that climate change could have to their organisations and take action to mitigate climate risks, including physical, transition and liability risks.

type
Media release
author
By Institute of Directors
date
31 Oct 2019

The Institute of Directors (IoD) has highlighted that while there has been an upward trend in terms of board engagement on climate change-related matters over the past three years, there are still only 35% of directors who said their boards were engaged and proactive on climate change.

This latest statistic from the 2019 IoD Director Sentiment Survey was announced following the release by the Aoteroa Circle Sustainable Finance Forum of a legal opinion today which says “directors of New Zealand companies are generally permitted, and will in many contexts be required, to take climate change into account when making business decisions” — a requirement which stems principally from directors’ duty to act with reasonable care.

The opinion concludes that “directors must assess and manage climate change risk as they would other financial risks.”

IoD Governance Leadership Centre General Manager Felicity Caird says the opinion is in alignment with the IoD’s view on climate change and its implications for directors.

In the Sentiment Survey, a majority of directors (70% — up from 66% in 2018) agree that their board considers environmental and social issues are very important to their business.

However, Ms Caird says “all boards should ensure they are aware of the potential impact that climate change could have to their organisations and take action to mitigate climate risks, including physical, transition and liability risks”.

Practical steps

The legal opinion provided to the Aotearoa Circle Sustainable Finance Forum by law firm Chapman Tripp, states that climate change presents a foreseeable risk of financial harm to many businesses with particular risk arising directly or indirectly out of the impacts of transitioning to a lower-carbon economy.

It also highlights that where the company has public disclosure obligations, directors also need to ensure they are disclosing material financial risk due to climate change as they would disclose other material business risks.

Ms Caird says the IoD endorses the practical risk management steps relating to climate change mentioned in the opinion which includes:

  • adopting an organisation-wide risk management framework, with climate change included within that framework as appropriate
  • keeping the board and senior management up to date on climate change risks, for example through periodic briefings
  • ensuring there is a sufficiently diverse range of knowledge, skills and experience on the board and within management to identify and effectively address climate risk
  • seeking independent expert advice on the climate risk faced by the company and options for addressing that risk and
  • taking concrete steps to address the company’s exposure to financial risk from climate change.

Go to 2019 Director Sentiment Survey report

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