Are you ready for ESG and Climate Risk?

Are you ready for ESG and Climate Risk?

Insufficient attention is being paid to environmental social governance (ESG) and climate risk, despite the strong likelihood that it will impact business in the future, according to findings from a WOB survey conducted over two weeks in January 2020. The survey, ESG and Climate Risk, attracted 125 responses from the WOB network, of which 67 came from people who served on boards.

It is clear from the survey findings, that governance around climate risk is something organisations need to come to grips with - and quickly. Scroll to the bottom of the page for 15 tips on actions boards can take on ESG and climate risk or download this excellent report from The Governance Institute.

Survey Findings

Figure 1:  95 (77.9%) agreed that organisations in Australia were not paying sufficient attention to ESG and Climate Risk?

Figure 2: 118 (96.7%) thought it was important that organisations treat climate change as a potential risk, even if they personally did not believe in it.

Figure 3: 115 (94.2%) agreed that climate change is affecting or is likely to affect the governance, assets, supply chains, resources and other parts of their organisation / business in the future.

Figure 4: 115 (94.2%) were at least moderately concrend about Australia's future in respect to climate risk. 

Figure 5: In response to the question asking what boards can do to improve their ESG, specifically in the area of climate risk, respondents indicated the following preferences. 

There was also a range of other suggestions which are listed below.

  1. Adjust traditional financial reporting to include a valuation of environment and social impact.
  2. As an Executive for a large super fund, I have seen the strategic importance of ESG, Responsible Investment and Climate Change strategies grow significantly over the past 5 years.  Integrated Reporting which looks forward  (as opposed to the tradtional Annual Reporting methodology which looks backward) will be fundamental for many companies in addressing ESG and climate related risks in their business.  At VicSuper we also provide a Climate Change report as well as an Integrated Annual Report which talks to how our Board and Management are looking at these types of risks and including them as part of their strategic planning and risk management process.  Deakin University have just launched their Centre for Integrated Reporting of which I am on the Advisory Board.
  3. Assess all elements of the business to avoid investment in assets likely to become stranded as climate changes. Review financial investments and insurance products to get on the right side of history and economic drivers
  4. Assess and manage climate change risks
  5. Boards and CEOs should be required to lead by example. The ESG obligations and accountability should not devolve to less empowered and lower-paid workers
  6. Business should be working  harder with government to reduce carbon emissions
  7. Carry out scenario analytics to build risk / mitigation plan
  8. ESG, climate impacts are DIFFICULT to measure in a meaningful way!
  9. Have sector specific co-operative forums where Boards can come together to advance their understand and capacity for action planning - this could work particularly well in NFP
  10. Identify opportunities related to new areas of business in advancing social and environmental outcomes
  11. Lobby parliamentarians to adopt a bipartisan approach
  12. Make sure the public and the government understand this is an issue affecting business sustainability and profitability through media, public forums, statements etc
  13. Publicly support strong action for mitigation and adaptation
  14. Strengthen the understanding that without sustainability our well-being won't have a future.
  15. undertake scenario analysis and reporting in line with the taskforce for climate related financial disclosures
With thanks to all those who participated in the survey.