Climate obligations

The report begins by stating the importance of incorporating climate change into corporate financial risk management, disclosure, and supervisory practices. The authors endorse the Task Force on Climate-related Financial Disclosures (TCFD) recommendations in this regard, which are gaining momentum globally. The report also highlights the need to account for environmental, social, and governance (ESG) risks and to apply the principles of the United Nations-supported Principles for Responsible Investment (UN PRI).

Directors’ duties

According to the report, corporations’ directors have an obligation to integrate climate change into their strategies, legal oversight, and supervision of the companies entrusted to their care. The authors are of the view that “climate change is a foreseeable risk that must be considered in the directors’ execution of their duties of care, diligence, and skill”. Therefore, the report recommends that board members take a proactive approach in overseeing how their companies integrate climate change issues into their operations and be more acquainted with climate change risks.

Disclosure obligations

The report also elaborates on the disclosure obligations of directors in various jurisdictions, including Australia, Hong Kong, Canada, the European Union, Malaysia, New Zealand, and Singapore. Enterprises are often mandated to disclose the detrimental impact of their operations on the environment, potential damage to society through their greenhouse gas emissions, and their environmental policies and strategies, among other issues. Specific guidance on non-financial reporting, such as the EU non-financial reporting directive, has been issued to ensure such disclosures are adequate in meeting the ESG responsibilities of the entities.

Advice to directors

The report provides advice that directors should follow when addressing climate-related risks and opportunities. It emphasises that directors should undertake a thorough assessment of climate-related risks and other ESG risks and opportunities that could affect the company’s financial condition or prospects. They should also consider whether such risks should be considered as principal risks requiring internal controls and related disclosures, and be limited in scope to material issues. The report also states that directors should exercise their judgement to determine whether the information available to them is sufficient to meet all legal obligations in respect of climate change disclosures.

Conclusion

The report underscores the importance of climate risk management, disclosure, and supervisory practices in responding to the financial and systemic risks that climate change presents to corporations and investors. Its recommendations urge corporations’ leadership to exercise foresight in managing climate risks and to adopt the principles of the UN PRI to account for ESG risk. It recommends that directors take a proactive approach in overseeing how their companies integrate climate change issues into their operations and be more acquainted with climate change risks.