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Climate Strategy: How Boards Can Holistically Approach Disclosures

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Nasdaq Center for Board Excellence A community dedicated to advancing corporate leadership

By Helle Bank Jørgensen, CEO, Competent Boards and Charles Neidenbach, Director, Board Advisory, Nasdaq, with additional insights from Amma Anaman, Senior Associate General Counsel, U.S. Listings, Nasdaq

Climate disclosures have come to the forefront in board discussions, especially in light of formalized climate disclosure requirements from the United States Securities and Exchange Commission (SEC), unveiled in March 2024. The ruling requires public companies to disclose climate-related risks and impacts; for large organizations, the requirements would take effect in fiscal year 2025.

While this is just the latest ruling underscoring the crucial role a board plays in overseeing a company’s climate-related strategy, effective and forward-thinking boards have anticipated this new age of climate governance. Boards must be prepared to think holistically about sustainability, operations and business outcomes. Investors demand it—and increasingly, stakeholders expect it.

For many companies, the SEC rules are simply a formalization of the work they have already begun on their own. The SEC notes that, “Already 90 percent of the Russell 1000 issuers are publicly providing climate-related information, though that’s generally in sustainability reports outside of their SEC filings.” The finalized rules would call for disclosure on material climate-related metrics, such as greenhouse gas emissions data, as well as information on climate governance, risk management, and targets and goals

More than anything, these new climate disclosures demonstrate the importance of agile leaders, who can get comfortable with change and confront an unpredictable future.

One step closer to effective climate oversight

Climate risk requires a delicate dance between short-term gains and long-term strategy. For boards that are overwhelmed with the cost of compliance today and the burden of untangling the demands of regulation, a new way of thinking might be, “What does this cost us today?” and then “What is the greater cost of not meeting compliance?” In other words, what is the cost of inaction when it comes to climate risk? Experts agree that the cost of the latter—inaction—is much, much greater. A study from Deloitte shows that “unchecked climate change could cost the global economy US $178 trillion over the next 50 years, unless global leaders unite in a systemic net-zero transition.”

Change starts with data. Investors have said, loud and clear, that they want comparable, clear and transparent climate data. This includes climate risks, governance, metrics, targets and more related to individual companies. It also includes physical and transition climate risks to the organization itself.  Understanding shareholder priorities and climate-related expectations can help boards be prepared in the case of shareholder activism or engagement. Part of the boards' role in overseeing climate-related governance should involve receiving regular updates from management on progress related to climate initiatives.

A climate roadmap for boards and management teams

When it comes to board and management teams partnering to achieve climate goals, the priority is alignment. They must share the same vision and goals and cascade them to all stakeholders at every level of the organization. A comprehensive approach is imperative.

While the board’s role is to provide oversight, management teams must ensure processes and procedures are in place to support the organization’s long-term strategy. Listed below are areas for evaluation and questions leaders may ask themselves.

  • Break free from silos. Climate cannot be addressed in a silo. It is critical to think through end-to-end business processes that touch every function, business unit and geography. Are your processes set up in silos? Are your processes built to support your climate goals?
  • Evaluate your data. Boards must ask if they can trust their data sources, including the ways in which data is collected, protected and shared. How is data currently managed and stored?  
  • Protect your supply chain. Supply chain operations must support not only the current environment but the future one. Consider your processes for onboarding new suppliers. How are new suppliers and partners evaluated, and what is your due diligence?
  • Understand your scope 3 emissions. While not required in the new SEC rules, many companies are already disclosing some level of scope 3 emissions. However, they may want to dig deeper to understand the breadth of Scope 3 categories, what they are not sharing, what they can measure versus estimate, and the holistic “why.” This requires a sophisticated understanding of not just data, but also key relationships, such as those with suppliers. Education and engagement are key.
  • Identify business areas that are most open to risk. How does climate risk affect our short-, medium- and long-term strategy, and in which areas are we most vulnerable?  What are the physical and transition risks we are exposed to and across what time horizons?
  • Establish and commit to proper controls. Just like companies have learned and adapted to financial controls and standards, it’s now time to do the same with climate. This is the next phase for many companies - to elevate their controls and treat climate reporting with the same respect and care as they do financials.
  • Link your climate data with your financial data. Synchronizing the two could be transformative for many companies—the next layer in a holistic, company-wide commitment. What are you paying for and what are you receiving? What’s the financial impact of your climate-related risks and how is it shared and communicated?
  • Know your gaps.  Where are there gaps in our current processes and planning? What are our short-term and long-term plans for addressing risk? Have we conducted adequate scenario planning that is aligned with climate science and reflective of the company’s risk exposure?

Facing the future by going back to the basics

Scenario planning is one of the most powerful tools boards can employ in addressing risk governance. Directors may agree that looking out over the next year or two feels within their reach. Five years may feel doable, with the right data and perspective. But what will happen 10, 15, 20 years from now? This is where it becomes more challenging (and uncomfortable) to envision and plan.

Climate risk governance requires boards to take a forward-looking and long-term view that considers the impact on the company and its supply chain partners, consumers and employees. Frameworks and climate science exist as guideposts for decision-making today that can build future resilience — it’s now up to companies to plan, strategize and act.  

For boards, climate oversight calls for leaders who are dynamic and agile - can confront change and adapt, balancing short-term and long-term thinking. Companies that take a holistic, data-driven approach to managing climate risks—and confront the challenging questions about what the future holds—will be the ones that have a positive and lasting brand and impact for future generations.

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The views and opinions expressed herein are the views and opinions of the authors and do not necessarily reflect those of Nasdaq, Inc.

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