Five-Minute Brief: Effective Climate Governance

To steward companies effectively, board oversight of climate change needs to be both risk-informed and opportunity-fluent

The Evolving Role of Boards

Having a skilled, competent board has long been a cornerstone of sound corporate governance. Yet in a rapidly changing world, boards must navigate an increasingly complex set of issues. Far beyond traditional areas of oversight, boards must now take on issues such as climate change, equity, diversity and inclusion, cybersecurity, artificial intelligence and political uncertainty—among many others—all while creating value for shareholders and other stakeholders more broadly.  

Among these priorities, climate change presents unique challenges. Companies must act today to minimize their risks, foster business resilience and capitalize on opportunities in the low-carbon economy. Effective planning for the impacts of climate change requires a long-term view that spans beyond traditional business planning cycles. Inaction or insufficient action can lead to shareholder proposals, climate litigation, declining director support and even liability, greenwashing accusations, competitiveness issues as well as the compounding effects of climate risks, such as financial losses, reputational harm and stranded assets.

To steward companies effectively, board oversight of climate change needs to be both risk-informed and opportunity-fluent. Without this clarity, they cannot challenge management effectively and satisfy the increased expectations and responsibilities that constitute their fiduciary duties.

Developing Board-level Climate Competencies

Corporate directors today have an obligation to address climate change as part of their oversight of the companies they serve. To do so effectively, boards are dedicating resources to continuing professional development on climate topics. Formats vary widely, including guest speakers at board meetings on topics ranging from foundational concepts to hyper-specific issues, formal programs led by industry associations or director education institutes, and certificate courses offered to individuals or groups by academic institutions.

These training programs offer a solid introduction; however, board directors require a sophisticated, nuanced understanding of how climate risks and opportunities apply within specific organizational contexts. In our board advisory work, we evaluate board competence and develop bespoke curricula designed to help directors oversee the execution of credible climate strategies and transition plans designed to protect and create value.

Effective Climate Governance       

In our experience, directors should have a clear understanding of how management evaluates which risks and opportunities are material to the company, if those risks are being managed adequately and how their impacts may evolve over time. This includes understanding the legal and regulatory environment in which the company operates and the climate concerns of relevant stakeholders.

In particular, directors need a strong vision of how companies will thrive and compete in a net-zero economy to discern whether management’s climate strategies and transition plans are credible. This includes ensuring that climate considerations are embedded into strategy, enterprise risk management, and other long-term planning decisions, such as capital allocation and liquidity buffers. It also means establishing clear incentives for progress, accountability for decision-making and transparency.

Ten Recommendations for Boards

Boards can better prepare their organizations to thrive in a low-carbon economy by taking these actions:

1. Independently evaluate director competencies, identify gaps for further education and enhance upskilling with programs that are tailored to unique organizational circumstances, maturity and context.
2. Address climate-related conflicts of interests—such as directors with personal, professional, or financial interests in fossil fuel-related activities, or frankly, climate denialism—to uphold board integrity and drive progress on climate action.
3. For companies with business models and operational activities with elevated climate risk exposure, include a director with relevant climate subject-matter expertise, especially upon director renewal.
4. Establish robust governance structures for climate oversight and link executive compensation to specific, quantifiable climate goals to reinforce accountability for results.
5. Determine if management has clearly identified its climate risks and opportunities in dialogue with relevant Indigenous rightsholders and stakeholders, and how these may evolve differently over time, a practice known as scenario analysis.
6. Consider how the company’s strategy and transition plans address their unique climate risks and opportunities, and how they intend to deploy talent, technology and innovation, capital and other resources to decarbonize while avoiding locking into carbon-intensive decisions.
7. Expect management to acknowledge any positive or negative social impacts of their climate strategy and determine if the transition plan seeks to repair, reconcile and restore the prosperity of groups that have historically been excluded from fair economic participation.
8. Determine if management is integrating the findings of its risk assessments and scenario analyses iteratively into strategic decision-making.
9. Approve the climate strategy and review progress on the transition plan annually, including investments and results.
10. Understand if the company is subject to mandatory disclosure requirements and/or reporting standards, and if the information and audit systems are adequate to ensure consistent, transparent and credible reporting.

Govern the Climate Transition Effectively

Quinn+Partners offers tailored services underpinned by over a decade of experience of advising leading executives in North America. If you are looking to establish strong board and executive level climate governance, evaluate the board’s unique learning and development needs, build capacity through tailored education or accelerate progress, please get in touch.