Primer on climate change: Directors’ duties and disclosure

CGM was pleased to host the Asia-Pacific launch event for the "Primer on climate change - Directors’ duties and disclosure", in collaboration with the Commonwealth Climate and Law Institute. It was a very good turnout reflecting the keen interest in the topic.

The diverse group of speakers provided insights into the challenges and legal risks facing directors in the transition to a zero emissions economy, as well as some of the opportunities. Read the highlights of this session below, prepared by the moderator Shai Ganu of WIllis Towers Watson.

Click here to watch the recording of our event.

Read the "Primer on climate change - Directors’ duties and disclosure obligations" here [PDF copy below] and the background to this Primer here..

Investors will increasingly vote against nomination of directors who do not steer their companies towards decarbonization pathway.

How to contribute to world-leading research on climate change in the boardroom

The Commonwealth Climate and Law Institute is partnering with world leading behavioural science consultancy Influence at Work to undertake research on the role that psychology plays in understanding how boards engage with the subject of climate change in the boardroom.

They are inviting currently serving executive or non-executive directors to share their board experiences (positive or negative) via a short online survey. In anticipation of you completing this survey CCLI have agreed to donate to three environmental charities.

By completing the survey you can vote for the charity you think most deserves the funds. Click the survey link to find out about the charities!

Thank you again for joining us and we hope to see you at future events. Kind regards

Climate Governance Malaysia and the CCLI

Directors’ obligation is to ensure the right process is followed related to decisions on Climate Transition

Note from the Moderator, Shai Ganu, Global Practice Leader, Remuneration of Willis Towers Watson

Climate change has moved from an ethical or environmental issue to a critical consideration in the way boards oversee risk management, strategy and corporate disclosure.

Yet many directors are unaware of how this risk relates to their legal duties and disclosure obligations. They often assuming that by pursuing a zero-carbon business strategy, they may need to “leave profitable business on the table” and in so doing, face the risk of removal or litigation.

In this context, the panel embarked on a deep-dive into Directors’ duties, legal responsibilities, and disclosure requirements; covering different perspectives: a legal view, an investor’s views, and non-executive directors’ perspective.

Below are some key sound-bytes that capture the essence of the discussion:

• There is a sense of universal commonality related to directors’ responsibilities when it comes to Climate change;

• Climate change is a financial risk for companies;

• Concerns that being “legally prevented from leaving profitable business on the table by pursuing climate transition” – are, as a matter of law, unfounded;

• Directors’ obligation is to ensure the right process is followed related to decisions on Climate Transition;

• When dealing with climate change, it is critical to take an “all of government; whole of society approach”;

• Important to understand that climate risks cover Physical risks, Transition risks, and Liability risks;

• Climate risk is an investment risk; there will be a significant reallocation of capital;

• “How much time should directors spend thinking about Climate issues?” – start with the time they would have spent on dealing with the pandemic, and multiply it by five!

• “We didn’t know five years ago what we know now” – is NOT a credible defense;

• ESG is very different from CSR!

• Cost of inaction will be significantly higher than costs of transition;

• Transparent disclosure on all material aspects of running a business are absolutely critical for investors to have a sense whether a company is on the right track;

• What gets measured gets done, and what gets rewarded definitely gets measured! Important to align executive compensation with Climate transition priorities;

• Directors need to be Climate literate, if not Climate experts;

• Investors will increasingly vote against nomination of directors who do not steer their companies towards decarbonization pathway.

• What is the greater risk for directors: that they may face personal liability for taking actions that compromise the company’s near-term profitability, or that they may fall short of their obligations relating to good climate governance and disclosure of climate issues that affect the company? The primer suggests the later!

CGM Response to some of the questions asked during this session:

Q: Should climate change policies be made one of the items in the check list for companies where failure entails censure?

(CGM) National level commitments to Paris Agreement are themselves not legally binding, thus any climate policies at country level can only be enforced if mandated into laws. Currently, this has only been put in place in the EU on 28th June 2021 to make it legally binding for the bloc to reduce GHG emissions by 55% by 2030. How this flows into each country/sector/company remains to be seen.

Q: Further, in Malaysia one of the biggest polluters are the oil palm plantations. is there any best practices module that may be of help to ensure these plantations do their duties to climate change?

(CGM) Oil palm plantations are neither the biggest polluters nor the largest GHG emitters in Malaysia. Malaysia’s Third Biennial Update Report to the UNFCCC (BUR 2016), states that in terms of GHG emissions, the energy sector remained as the largest contributor of emissions where it accounted for 79.4%. The agriculture sector which includes oil palm contributed the lowest emissions in totality at 3.4% .

In terms of best practices for climate related risks, in Malaysia, all oil palm plantations are required to be certified under either RSPO, ISCC or MSPO.

In comparison to the seven major oils (palm oil, soyabean oil, rapeseed oil, sunflower oil, groundnut oil, coconut oil and olive oil) using the combined global agricultural and environmental datasets, the oil palm has been found to have the lowest carbon footprint associated with the production of one litre of vegetable oil [Beyer & Tademacher, 2021].

Watch this session again here [will be updated shortly ].

Click on the poster for details of this past event.