The Black Summer bushfires have fuelled urgency on climate change governance

The bushfire crisis that besieged Australia this summer has catapulted both climate change and the associated risks to the forefront of the nation’s psyche, and with a long rebuilding process ahead, the catastrophe is likely to remain a part of the country’s collective memory and indeed social fabric.

With the devastation captured in graphic and terrifying footage by both professional and amateur media, and broadcast to captivated audiences globally, climate change in Australia suddenly became very real and no longer an academic argument alone.

There’s been an escalation of awareness, opinion and activism, as inevitably society quickly began looking for answers and accountability, starting with government but also turning to corporate responsibility.

We’ve witnessed commercial activism, with companies tuning in to public sentiment. Jewellery retailer Tiffany & Co took out full page advertisements calling on Prime Minister Scott Morrison to take action.

Meanwhile transportation company Greyhound, under pressure from threats of boycotts from climate campaigners, announced a decision not to extend a contract with the controversial Adani mine in Queensland.

Also making headlines was news an investor was suing his superannuation fund for failing to have a plan to consider climate risks on investments.

And then one of the world’s largest asset management firms Blackrock announced its intention to integrate sustainability into its investment portfolios, with chairman and CEO Larry Fink saying that “climate change has become a defining factor in companies’ long-term prospects” and also that “awareness is rapidly changing, and I believe we are on the edge of a fundamental reshaping of finance”.

Suffice it to say, that whilst climate change is an area of ESG not new to Boards, there are expectations that Boards remain ahead of community sentiment and for those who have thought that they had time to address these matters, they have fallen short.

The acceleration of public sentiment on the issue means that climate change governance strategy has reached a point where it will be imposed upon Boards, rather than directors having time to decide what fit for purpose looks like for them.

It’s not easy being green: climate governance challenges

There are numerous reasons why Boards may have been ambivalent towards climate risk and implementing strategies for it.

The World Economic Forum last year published guidance on climate governance and recognised that while “current disclosure, regulatory and investor trends are driving increased corporate attention to climate change, many boards are struggling to address the related risks and opportunities in a holistic way.”

The WEF identified three reasons for the struggle, being: competing priorities; complexity of the subject; and short-term pressure versus the long-term nature of dealing with climate change.

Perhaps some Boards are waiting on government action and direction on the matter. According to the AICD Director Sentiment Index from the end of 2018, Australian directors nominated climate change as the number one issue they wanted the federal government to address in the long term.

Whilst federal direction and action is warranted, climate risk is no longer an issue Board’s can afford to leave on the table, waiting for someone else to answer the problem for them.

Destined to see an increase in litigation

The escalating perceptions of climate risk among the public, firms and governments were noted in March last year in comments from Noel Hutley SC writing for the Centre for Policy Development.

In an update of an earlier opinion written in 2016, in which Mr Hutley and co-author Sebastian Hartford Davison found that directors who didn’t properly manage climate risk could be held liable for breaching their legal duty of due care and diligence, the authors said they were “now observers of a profound and accelerating shift in the way that Australian regulators, firms and the public perceive climate risk”.

In their opinion, exposure of individual directors to climate change litigation was increasing, and “probably exponentially, with time”.

Legal experts are also warning of increasing litigation against companies responsible for significant emissions and KPMG has also identified increasing examples of companies facing legal action from governments, citizen groups and NGO’s.

Best-practice climate change governance

Directors need to be proactive on climate change governance in regards to financial and non-financial risks, and Boards must also, from a corporate citizenship perspective, examine their organisation’s contribution or otherwise to the issue.

In its guidelines, the World Economic Forum identified eight principles for Boards to consider and implement:

1. Climate accountability on boards
2. Command of the subject
3. Board structure
4. Material risk and opportunity assessment
5. Strategic integration
6. Incentivisation
7. Reporting and disclosure
8. Exchange

Climate change governance must be discussed at a Board’s strategic workshops so that directors have the opportunity to address these principles.

Questions that should be asked in the first instance include:

• What is the understanding of the issue around the Board table – is there truly sufficient understanding of all the elements of climate risk?
• Is there a need to bring in external expertise to enhance understanding among directors?
• Have we identified subject bias of the directors around the table –  The Deniers, The Hardheaded, The Superficial, The Complacent, and the True Believers?
• What frameworks will the organisation report against?
• Does the Board need to establish a specific climate risk sub-committee?
• How will we communicate our beliefs and measure our success?

The addition of scenario planning is useful to understand risks in greater depth, test responses and add confidence in strategic decisions.

 

There is no doubt that the Black Summer fires have impacted community sentiment in Australia on climate change and – importantly for Boards – also the expectations the community now has on authorities taking action on the issue.

The rebuilding process and inevitable investigations and reports into the disaster will ensure that the issue remains front of mind and it stands to reason to expect there to be more scrutiny.

Regardless of individual opinion on climate change, directors must recognise that our Black Summer has scarred more than just the landscape, and that public sentiment now means Boards cannot be complacent on climate change governance.

 

Photo by Markus Spiske on Unsplash

 

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