Climate change and corporate governance trends

Climate change and corporate governance trends are crucial to keep track of as part of good ESG education and professional development. Climate rules constantly shift in the corporate setting, and these large-scale shifts serve as effective learning points for boards worldwide in shaping environmental, social, and governance (ESG) practices. It’s exemplified by decisions from the American Securities and Exchange Commission (SEC) this year - one of several worldwide which would easily require your organisation to stay vigilant and responsive in adapting to the latest governmental decisions. However, it is necessary to first consider the current environmental impacts of companies and governmental initiatives for controlling and managing the situation. Creating gas emission disclosures for climate change High traffic of consumer activities has led to a subcategory of pollution known as Scope 3 emissions that produce additional greenhouse gases. While the SEC once enforced scope 3 gas emission disclosures among public companies to combat climate change, the body scaled back on the decision in 2024. Legal challenges were the primary reason for calling back the rules, with the SEC concerned about history repeating itself. Particularly, it was the US Supreme Court's decision that prevented the SEC from regulating greenhouse emissions with proper disclosure standards. Navigating the rapidly evolving climate change narrative can prove challenging for unprepared boards as rules alter based on legal decisions alongside government priorities and objectives. Understanding the connection between climate change and corporate governance Since boards are critical in overseeing corporate governance, members and directors should constantly improve the transparency and consistency of their reporting practices. Board members and directors should work closely with senior management to align their strategies with the latest climate demands. Assessing the risks and opportunities Multiple risks and opportunities come with climate disclosures, and board members and directors should tap into their industry expertise to highlight these critical points. Aside from fulfilling governmental demands and objectives, disclosure helps to secure investor trust. A well-planned climate reporting strategy should clearly outline the risks and opportunities involved in the decisions. These should include proper metrics that allow organisations to measure risks and opportunities in climate reporting. Insightful areas to consider in a comprehensive reporting strategy should include: Greenhouse Gas (GHG) Emission Details - Your organisation should gather a detailed breakdown of the different types of greenhouse gas emissions across scopes 1, 2, and 3. These reports should also distinguish the various gases emitted, such as the percentage of methane and nitrous oxide. Transition Risks - While these risks are broadly defined, they refer to your company's uncertainties while it progresses toward a more sustainable and low-carbon outlook. The umbrella term usually includes market, regulatory, and technological risks. Operational Cost Savings - The improvements in revenue resulting from reduced wastage and increased operational efficiency. Supply Chain Resilience - A measurement of how existing supply chains fare under volatile scenarios, such as optimising diverse resource supplies in maintaining undisrupted delivery. Regulatory Risks - Since legal compliances and industry standards for climate reporting are ever-changing, it is necessary to reflect these changes to avoid legal penalties and reputational issues. Keeping boards engaged in climate reporting It is integral for corporate board members to stay engaged in the climate reporting process, expanding upon the risks and opportunities involved. Industry surveys show that a lack of board engagement ultimately leads to poor financial backing and less robust ERG initiatives that affect the effectiveness of climate risk policies. Your board could consider the following steps in improving engagement in climate reporting and addressing changes collectively with senior management. Building a robust board structure A well-established board enables your company to appoint specific members tasked with the responsibilities of climate management. The designation enables CEOs and senior management to outline the risks and opportunities to relevant board members to drive the most effective strategies without delay. It is also important for board members to consider corporate governance planning while overseeing climate reporting. These oversights should involve consistent and routine disclosure audits conducted by an internal committee. It is also strategic for your board to inform senior management about the risks of failing to fulfil certain climate change requirements. Board members and directors can take the opportunity to identify specific operational issues/case studies related to climate reporting and compliance. Seeking external support if needed Your board should seek an external assurance review if required as an added measure for fine-tuning ERG initiatives. External assurance teams provide the experience and authority to evaluate your company's sustainability reports. By collaborating with an external team of experts, you could reduce risks and leverage opportunities, improve engagement between the board and senior management, and boost stakeholder communications. Integrating climate reporting in enterprise risk management (ERM) Adding climate reporting as a vital component of ERM enables boards to prioritise the necessary funding and decisions needed to drive a positive impact across company operations. Prysmian, a manufacturer of electrical cables for the energy and telecommunication industries, integrated climate reporting into its core ERM practices. These measures enabled the company to create specific benchmarks that assessed the transition risks faced by clients and suppliers. The insights gained from the integrated reports help Prysmian identify the most significant risks and opportunities the organisation faces. The company applied these measurements for scenario analyses across various time horizons/periods and improved short- and long-term corporate resilience. Prysmian maintained an analysis of climate risk scenarios and optimismed communications with stakeholders with the integration. Climate change and corporate governance - The Corporate Governance Institute

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