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Boardrooms can cash in on climate risk

Marion RaeAAP
Many Australian company directors are prepared to tackle climate change as an 'opportunity'.
Camera IconMany Australian company directors are prepared to tackle climate change as an 'opportunity'. Credit: AAP

Australian directors and boards are concerned about climate change risks but many want to turn it into an opportunity, a report has found.

A first-of-its-kind study into how climate governance is evolving has been released by the Australian Institute of Company Directors as a benchmark for how companies and organisations tackle the challenge.

“Climate change is an issue that most directors grapple with, and they are alive to risk, but the focus has shifted to one that considers the opportunities inherent in climate change,” AICD chief executive Angus Armour said on Monday.

Most directors (77 per cent) are concerned about impacts on their organisation, with nearly one quarter (22 per cent) “extremely” concerned.

But half (51 per cent) also saw opportunities from proactive responses to climate change.

“There is now a business case for investing in growth areas driven by climate considerations,” Macquarie Group chair Peter Warne said in the report.

“And you have to consider the business case just like any other business case, looking at the financial aspects, operations and return on investment.”

Almost half of respondents (46 per cent) saw the lack of a settled national climate policy as a barrier to effective climate governance.

Chair of Yarra Valley Water Sue O’Connor said boards should be focusing on both the growth opportunities as well as managing the risks of climate change.

“Explore opportunities that deliver both net zero and financial value. It is possible, achievable and prudent,” she said.

But the issue is not yet widely linked to pay or bonuses, according to the report.

Other findings were consistent with general population studies that have found women and younger Australians are most concerned about climate change.

Generally, older directors were less likely to feel pressure to act on climate change from stakeholders.

Female directors were more likely than male directors to want a greater focus on climate governance on their boards.

The younger a director was, the more likely they felt more attention should be paid to the issue, the report found.

Energy, agriculture, forestry and fishing directors tended to be more active than average on climate change issues, while those in mining were less so.

Directors in finance, insurance and manufacturing tended to tread a middle-of-the-road path.

Directors of listed entities, while still worried about operational risk, tended to be more concerned about increased regulatory costs such as a “carbon tax reputational damage”, and increased cost of capital.

Those at not-for-profit organisations were more likely to be concerned about employee health, including mental health.

The common risk identified by directors from all sectors was the regulatory and political uncertainty.

Audit and assurance on climate reporting and disclosure was the looming challenge for boards, particularly as stakeholder expectations change, the report found.

“Building ‘climate competence’ should be part and parcel of a director’s job. Increasingly, investors, proxy advisers and regulators are looking to see boards demonstrate this,” EnergyAustralia chair Graham Bradley said.

The report listed the key steps for boards on climate governance:

  • Conduct a board readiness check
  • Skills assessment of directors and review of board composition
  • Consider upskilling or bringing in external assistance
  • Embed into risk management and strategic oversight process
  • Consider targets, metrics and reporting arrangements
  • Review and seek continuous improvement.

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