Why Climate Governance is urgently required-Role and responsibilities of Board of Directors

This keynote was presented by Dr Kalanithi Nesaretnam during the webinar "Primer on Climate Governance: Part I". Read the recap and watch the entire recording here.

The 2020 World Economic Forum global risk report highlighted that climate risks and biodiversity loss rank among the top 5 risks for businesses in the next 10 years in terms of likelihood and impact.

We all know that as far as climate is concerned we are in a state of emergency. 2020 has been a challenging year fighting the invisible covid virus which caught us by surprise, but the bigger elephant in the room is still climate change. One report notes that more than 100 climate related disasters occurred in just the first 6 months of the pandemic affecting over 50 million people. 83 percent of all disasters triggered by natural hazards were caused by extreme weather and climate related events such as floods, storms and heatwaves. In the year 2020 we saw worsening climate effects, the melting glaciers in the Artic, rising sea levels, floods in Bangladesh and fires in Australia and California.

The current trajectory of elevated GHG emissions is projecting a 2.8-3 C rise in temp. With the pandemic we saw a 8% reduction in GHG emissions but to get back on target of 1.5 C we need to reduce by 15%. What gives us hope is that if we collectively work towards addressing the crisis and limit global temperature rise to 1.5degrees we can arrest this trend. As long as we as individuals take responsibility in addressing the challenge in any way possible and advocate for positive initiatives from the Govt, we will be on the right track. Recent announcements by various countries for net carbon zero targets are encouraging and we hope the stated goals will be achieved.

Businesses on the other hand are a significant emitter of carbon emissions and many companies which are not prepared for the climate emergency may go out of business. Big investors like Black Rock have urged companies to maintain their focus on reducing carbon emissions, teaming up together through initiatives such as Climate Action 100+, amid growing concerns of an economic fallout from global warming. Partly in response to investor and customer pressure, businesses have begun making so-called net zero commitments — pledging to cut or offset emissions by taking an equivalent amount out of the atmosphere through carbon capture and other technologies. Companies including BP, Shell, Barclays, food company Nestlé, miner Vale and the airline group IAG have all set net zero targets, for 2050.

It is also heartening to hear from Malaysian corporations like Petronas, their aspirations. I am also a member of CIMB’s CEO action network and I am happy to report that over 40 industry captains have come together to adopt best ESG practices. CGM is working with the ASM to provide data to companies on what a 1.5 C Malaysia will look like so they can take the necessary mitigation steps to prepare for this eventuality.

Companies in the future will also be faced with enduring a carbon tax on goods exported to certain countries.

EU, for example which already has a binding target to cut greenhouse gases by at least 40% by 2030 from 1990 levels and runs the world’s biggest carbon market, wants to become climate-neutral by mid-century under an unprecedented strategy called the Green Deal.

The EU wants to ensure that imported goods makers face the same costs of emissions as European companies. A carbon border tax would penalize dirty imports from countries that lag behind in fighting climate change. The European Commission, is considering both a carbon tax and extending the system of CO2 permits that exists in Europe to cover imports.

In an informal survey of directors and management teams, that we ran in August 2020, there was overwhelming demand for the type of content which CGM is providing to the business community including the need for more detailed analysis for boards to make fully-informed decisions about business strategy, future allocation of capital, how to smoothly transition from brown businesses and insights into green opportunities.

As a first step towards climate neutrality and resilience PLCs should take steps by measuring and disclosing 4 key areas namely

GHG emissions

Water use

Energy use and waste management

The WEF launched the initiative on climate change targeting non-executive directors of Boards from the perspective of governance. Decisions made at the Board are more effective in steering companies to adopt best practices.

The eight core principles under the CGI include accountability, subject command, Board structure, materiality assessment, strategic integration, incentivisation, exchange, reporting and disclosure. Board members should incorporate these principles into the short, medium and longer-term organisational strategies, to ensure the viability of companies over the next few decades.

We have started with the PLCs where we are Directors and we hope that soon we can report that others have come on board. Of course our partners Bursa and Securities Commission are on the same page and are supportive of the initiative.