The Board of Directors is mandated to approve corporate strategies and goals, set policies appropriate for business, and provide leadership and direction to management. The team of management is mandated to plan, organize, lead and control the organization/business.
The connection between climate change and business is becoming increasingly crystal clear and inseparable. Business resolutions and ventures will slow or advance climate change and climate change will propel risks and opportunities for business.
The Board of directors has an important role in the long-term stewardship of the companies they oversee. The Board with close collaboration with management is responsible for ratifying important decisions in a company. Climate change is a topic of great importance and addressing it requires considerable investment. It is expected that decision regarding this subject will require consent from the board of directors who then need technical and business knowledge on climate change.
Climate change interferes with normal business operations like any other negative externality thus the need for a board of directors and a team of management to have an in-depth strategy on how to unlock the opportunities as well as manage the risks involved. Climate strategies for business are not one fit solution, they are dependent on the sector and own company factors which call for localization to an individual company.
Climate change drives financial risks and opportunities which boards essentially have a responsibility to address with the same robustness as any other board topic. The board with the help of management is expected to develop good governance strategies in the organization which the expectation to ensure that climate-related risks and opportunities are appropriately addressed. As an example, boards are obligated to recognize, research, benchmark, and cautiously manage risks emanating from climate change- transitional, physical, or liability risks. The negligence of not acting on and disclosure of material risk or threat might expose companies’ loss of business competitiveness as well as regulatory or legal action.
Sustainability subject matter experts can provide technical expertise to Boards and their teams of management to develop the required strategies and the implementation of the same. Capacity building and dissemination of knowledge on climate and environment-related risks and opportunities will be key and should be addressed from a firmwide perspective to ensure the transformation to a culture of sustainability.
The Board as the apex decision-making organ of the company requires to understand the climate crisis and its effects on their business. According to the 2023 World Economic Forum (WEF)risk report, climate and environmental risks are the core focus of global risk perceptions over the next decade – and are the risks for which we are seen to be the least prepared. There is a need to build on improving the management and disclosure of climate and environmental-related risks of a business, especially for insurers, bankers, and investors.
Unpackaging and developing business strategy on climate change enhances the business’s ability to:
- To attract investors: Currently, investors are conscious company’s efforts to cope with climate-related risks and opportunities before committing their resources. This is guided by the fact that climate change will greatly impact returns on investments and investors views climate change as a new return variable for consideration.
- To improve profitability and enhance customer preference: Consumers continue to have a preference for goods and services that have excellency in environmental management. Increases in sales volumes while minimizing the cost of production improve the company’s profitability.
- To attract financing at even lower rates: Lenders are paying attention to the company’s ability to mitigate climate and environment-related risks before advancing credits to the organization. When commitment to climate change is established, businesses will have access to cheaper funding that is widely available and look for projects and companies that have embraced climate action.
- To maintain their supply chain: Mitigating and adapting to the impacts of climate change enhances an organization’s ability to manage its supply chain risks. This is especially for companies that depend on natural resources for their production activities. Addressing climate change enables them to maintain their markets without disruptions thus promoting their business continuity.
- To attract and retain employees: A regular workforce is an important aspect of organizational development. Employees are choosing to work for sustainable companies. Organizations that are not embracing sustainability including climate action are faced with the challenges of not being able to attract and retain staff.
The Board of directors is called upon to navigate the challenges presented by climate change to the success and sustainability of their companies. This is not only because of the benefits that their companies can accrue from this movement but because it is the right thing to do. This calls for substantial investments on the part of the company and there is no doubt that there will be a decent payback provided it is done in the right way.