Climate change is shaping a new reality, creating new risks and opportunities for businesses in many ways. Investors and shareholders are now challenging companies to take more responsibility and taking a strategic approach to address the climate crises.
The urgent need to address climate change requires firms and companies to transition quickly to meet the requirements of the IPCC’s warming limit of 1.5°C.
According to the World Economic Forum, “many if not most boardrooms are grappling with how to frame the risks and opportunities and embed a viable transition strategy into their business models. Boards of directors play a critical role in ensuring the long-term stewardship of the companies they oversee.”
With rising investor expectations and increasing litigation risks, companies’ failure to consider climate can no longer be excused.
The ‘Primer on Climate Change: Directors’ Duties and Disclosure Obligations’ from the Commonwealth Climate and Law Initiative (CCLI) and the Climate Government Initiative (CGI) advises that directors’ duties require them to be “properly informed about climate change risks” and to make decisions accordingly.
According to a new legal primer, there are “over fifteen hundred cases have been filed as of the end of 2020 to recoup some of the damage caused by climate change or the costs of adaptation, or to challenge governments’ or corporations’ actions or failure to act.”
Given that climate change is now recognised as posing not only a material risk to businesses but also a significant threat to the stability of the global financial system, directors must look at their legal duties “through a fresh climate lens,” the Primer says.
The Primer examines 20 countries and the European Union where the CGI is present through its global network of national Chapters. It provides an overview of contemporary evidence that climate change presents foreseeable, and in many cases, material, financial and systemic risks that affect corporations and their investors and then discusses:
- General climate obligations in the jurisdictions where The Climate Governance Initiative (CGI) is present through its global network of national Chapters;
- How company law and director’s duties in these jurisdictions require directors to incorporate climate change into their strategies, legal oversight, and supervision of the companies entrusted to their care;
- Disclosure obligations; and
- Advice to directors.
This resource can provide the board of directors valuable insight on various jurisdiction’s obligations, current litigation on climate change and gain helpful recommendations in taking proactive measures to prepare your company for the risks involved and effects of climate change.
To read the Primer, click the link below:
The Primer also referenced the International Financial Reporting Standards (IFRS) Foundation guidance titled, the ‘Effects of climate-related matters on financial statements’, an educational material that “highlights how existing requirements in IFRS Standards require companies to consider climate-related matters when their effect is material to the financial statements.”
According to the IFRS, “The material contains a non-exhaustive list of examples of when companies may need to consider climate-related matters in their reporting and is aimed at supporting the consistent application of IFRS Standards. It does not add to or change the requirements in the Standards.”
To read the guidance, click the link below:
The Primer on Climate Change: Directors’ Duties and Disclosure Obligations. (2021 June). Retrieved from https://www.ifrs.org/content/dam/ifrs/supporting-implementation/documents/effects-of-climate-related-matters-on-financial-statements.pdf
Primer on climate change. (2021, June 30). Institute of Directors New Zealand. Retrieved from https://www.iod.org.nz/resources-and-insights/research-and-analysis/primer-on-climate-change/#
Effects of climate-related matters on financial statements. (2020, November). IFRS. Retrieved from https://www.ifrs.org/content/dam/ifrs/supporting-implementation/documents/effects-of-climate-related-matters-on-financial-statements.pdf