August 23, 2021

Directors and officers need to be climate competent to tackle new climate challenges

Climate risk is reshaping business. The increasing number and intensity of hazards such as wildfires and flooding are posing a greater risk to businesses and forcing executives and directors to rethink how they work. This past June, a historic heatwave hit British Columbia and the Pacific Northwest, impacting thousands of people. As temperatures rose, so did the risk of heat-related injuries and death. According to Al Johnson, WorkSafeBC’s head of prevention services, all workers were at risk during that period. The organization also recommended companies to shut down their workplace if they could not ensure workers’ protection during the heat stress. This is one example of how businesses must consider climate risk, as it may affect productivity as a result of employee absence.

Extreme climate events may also impact the companies’ energy supply and cost of inputs. Earlier this year, Texas suffered from a power crisis due to three consecutive and severe winter storms. Millions of homes and businesses had no electricity, heat, and water, forcing businesses to shut down their activities. Climate-related events may also interrupt global supply chains, impacting production, increasing costs and prices, reducing the quality of goods and services provided, and disrupting the delivery time of goods and services. For example, in 2011, Thailand suffered from severe flooding, which affected more than 14,500 companies worldwide that relied on Thai suppliers. This global disruption caused an estimated US$15 billion to US$20 billion in economic losses. While it has been clear for decades that humans impact the changing Earth’s climate, the latest report from the Intergovernmental Panel on Climate Change (IPCC) brings greater clarity and concrete evidence on the role of human-induced climate change in intensifying specific weather and climate events such as heatwaves, heavy rainfall events, and droughts. These extreme climate events will continue to impact businesses across the world.

Business executives and directors also need to adapt to an increasing number of climate-related regulatory requirements. In Canada, the federal government announced in its 2021 Budget mandatory climate disclosure for crown corporations. Other countries like the United Kingdom and New Zealand have decided to make mandatory disclosures aligned with the Task Force on Climate-related Financial Disclosures (TCFD) for public companies. In the United States (U.S.), the House of Representatives passed environmental, social, and governance (ESG), climate disclosure rules for public companies. This growing number of tighter federal and global requirements impact Canadian businesses as they are connected to the rest of the world through customers, investors, and operations that go beyond Canada’s borders.

These are only a few examples among others of how climate is and will continue to reshape businesses. For directors and officers, they represent new challenges they must act upon, to guide their businesses to resilience and commercial success in a net-zero world. Despite these important changes, many directors seem unequipped to face the climate storm. According to a report from the Institute for Sustainable Finance, only 27% of companies listed on the TSX have disclosed a climate target, and of those, only 15% have published a plan to achieve their goals. A study on U.S. corporate boards reveals that 29% of the 1,188 directors surveyed had relevant ESG credentials. Of those, only 6% had experience under the E – ‘environment’. There is an urgent need for boards to be climate competent as climate is forcing companies to adapt their business model, strategy, risk management, financial reporting, and disclosure.

At the Canada Climate Law Initiative (CCLI), we work with a national network of 67 Climate Governance Experts to offer free of charge, private, and confidential presentations to board directors, pension trustees, and other fiduciaries, sharing insights on the latest developments in sustainable finance, climate disclosure, and corporate governance. We aim to ensure directors and trustees have the necessary knowledge and tools to understand their fiduciary obligations with respect to climate change so they govern with confidence. Our presentations allow directors to understand how Canadian climate regulations are connected to global standards such as TCFD and the Sustainability Accounting Standards Board (SASB). We tailor our presentations to fit companies’ specific needs so they understand how climate regulations impact their business, and finally, we explain what the legal obligations for company directors are.

Be ready for your first board meeting this Fall, contact us and book a CCLI presentation to learn about your board of directors’ legal duties with respect to climate.