Does your board understand the strategic risks of climate change?

  • Global climate change response has evolved rapidly in recent years and pressure on boards to act on climate-related risks continues to intensify.
  • Directors need to consider how they can identify, disclose, and respond to climate risks over the long term.
  • This article outlines recent developments of interest to directors and areas of action for boards.

Pressure on boards to act on climate-related risks continues to intensify, driven by investor expectations, heightened regulatory focus, and an increase in climate-related litigation. Climate change impacts may include asset devaluations, regulatory fines, supply chain disruption, reputational damage, and lost business. For these reasons, climate risk has been elevated by many boards from an environmental, social and governance (ESG) factor to a major strategic and risk consideration.

Directors need to consider how they can identify, disclose, and respond to climate risks over the long term. In Australia, the climate has warmed by approximately 1.4° over the last century. Direct impacts may include severe weather events, worsening droughts, extreme fire events, and rising sea levels. The 2019–2020 Australian bushfires caused loss of human life, livestock and wildlife fatalities, loss of tourism, transport interruptions, infrastructure damage, and earnings write-downs for insurance companies. The severe impact on communities brought climate change into acute national and international focus.

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