Navigating Climate Governance: Board Members

While this responsibility has been a constant, the emergence of climate change as a critical factor requires directors to tread new ground.

With 20 years of experience in public and private sector governance, including 15 years dedicated to delivering climate risk processes, I believe that there are crucial aspects of climate governance that every board member should be well-versed in.

Climate risk, akin to regular risk, has two main forms: physical risk and transition risk.

The former encompasses the risks associated with a changing climate, including heatwaves, floods, and bushfires.

On the flip side, transition risk involves the challenges of moving toward a low-carbon economy. Directors must comprehend the nuances of both and assess their organisation's vulnerability. Despite their distinctiveness, these risks inevitably trickle down to impact strategic, financial, and operational aspects.

Timeframes and Decision Lifetimes: Deciphering the Puzzle

The timelines for climate risk assessment and response planning differ significantly from traditional business planning. Physical risks unfold over decades, presenting a unique challenge for directors.

When to act?

The decision lifetimes approach becomes a valuable tool, acknowledging that decisions made today have varying spans. Directors must consider the longevity of decisions, from the choice of electrical equipment in a tolling booth to the construction of bridges on a highway, with the latter spanning 80-100 years.

This perspective guides the incorporation of long-term climate change into current decision-making processes.

Embracing Uncertainty: The Role of Scenarios

Directors can embrace uncertainty through scenario thinking, a core element of climate disclosure strategies outlined in TCFD requirements. Familiarising themselves with multiple scenarios enables directors to navigate the unpredictable nature of climate change with resilience.

Building the Evidence Base: An Iterative Approach

For businesses embarking on their climate risk journey, there is no one-size-fits-all formula to precisely gauge the financial impact of future risks.

An iterative approach involving risk screening, enterprise-level risk assessment, and the development of specific financial impact models is essential. Drawing from past and current hazards, such as floods and heatwaves, provides valuable data to build a robust evidence base over time.

Aligning with ISO31000: Recognising the Differences

While aligning climate risk assessments with ISO31000 is considered a leading practice, directors must recognise the subtle yet crucial distinctions. Adaptation measures, aimed at reducing climate risk vulnerability, take center stage in climate risk assessment.

Unlike traditional risk assessment, which considers only current conditions, climate risk assessment prompts directors to evaluate risk changes over multiple decades.

As we collectively address the challenges of climate change, informed and proactive governance will be the key to success. Read more about our climate change services here.