Climate Accountability on Boards 

Step 1: Accepting climate accountability  

The first step is accepting the board’s climate accountability. Discussions with US board members have identified three fundamentals:

1. Necessary knowledge of climate change and the net-zero transition and a financially quantified understanding of the risks and opportunities it poses for the business and value chain. A WTW and the Nasdaq Center for Board Excellence survey found that 48 percent of board members do not believe their boards currently have the skills and expertise required to provide effective oversight of climate risks and opportunities. This is essential to accepting climate accountability and viewing climate as a financial risk and board-level responsibility. (See also Principle 2, “Subject Command”.)
2. Ability to clearly articulate the business case and how climate action is an integral part of business strategy and long-term resilience. This cannot be done without robust risk and opportunity assessments, as well as materiality assessments for a wide range of ESG and sustainability domains that are likely to interrelate with climate issues for the business. (See also Principle 4, “Materiality assessment,” and Principle 5, “Strategic integration.”)
3. The right board culture so that climate champions on boards can frame climate accountability in a way that resonates with fellow board members, making them comfortable and encouraged to engage with management on climate issues.  

Step 2: Formalizing climate accountability  

The second step is formalizing climate accountability through board structures, processes, and activities. Below are three examples of how climate accountability can be formalized and continually reinforced.

1. Review board structure and committee remits to ensure that the full board and its committees are clear on their respective responsibilities for different aspects of climate oversight and how they overlap and should inform discussions with the full board and other committees. Climate resilience should be owned by the full board and incorporated into its board charter given its impact on business strategy; however, specific activities are likely to be delegated to board committees. For example, oversight of climate modelling and risk horizon scanning might sit with the Risk Committee, oversight of climate disclosures may align with the Audit Committee, and integrating climate goals with executive compensation will be overseen by the Compensation Committee. Some companies have introduced a dedicated Committee for Sustainability or ESG (~17% of the S&P 500) to ensure sufficient time and focus at board level is allocated to assessing and integrating climate risks and opportunities, as well as broader sustainability matters. Mapping Board and Committee climate governance responsibilities and integrating these into the respective charters and governing documents is an important means of formalizing climate accountability on boards.
2. Establish regular and meaningful board reporting to ensure the board has sufficient oversight of climate issues and that they are presented with insightful, decision-useful information. A regular reporting cadence is important given the dynamic and fast-evolving nature of the climate challenge, climate regulations, and the political landscape. It is also important to present information on climate risks, opportunities, transition and adaptation planning, and progress holistically and with the right context. For example, the board should expect to see connections across the following:
   1. how the climate transition plan is incorporated in business strategy
   2. the board’s decisions on major transactions and its approach to enterprise risk management
   3. how the board receives information on the company’s long-term climate resilience
   4. how climate risks and adaptation measures are presented with a clear view on their possible impacts on the organization’s key stakeholders, such as employees or communities across the value chain; these impacts may result in reputational risks

   Formalizing the board-reporting process and tools (for example, dashboards) such that major board decisions (e.g., business transformation, corporate transactions) are considered through the climate lens is key to bringing climate accountability under the board’s purview.

3. Strengthen the approach to board effectiveness assessments and education to ensure boards have the necessary skills, knowledge, dynamics, and culture to provide effective climate governance and uphold their accountability. The WTW and Nasdaq Center for Board Excellence survey found that while 74 percent of board members think that their boards are effective in their governance role, they are increasingly open to external expert assessment of board dynamics, culture, performance, and skill gaps. In addition to self-assessment, boards should explore more robust and objective assessment methods for continued improvement. Strengthening the approach to board evaluations, along with a more thoughtful approach to enhancing board expertise in climate and sustainability, can be a powerful way to formalize climate accountability. In line with Principle 2, meaningful board engagement and education on climate risks, opportunities, and the regulatory landscape are key in helping boards to execute their climate governance role. 

Questions for Boards to Consider

As climate change and the net-zero transition present significant financial risks and opportunities to businesses, it is squarely an issue over which boards must provide long-term stewardship. Key questions the board should consider in accepting climate accountability as part of their fiduciary duties include the following:

• What does the board’s definition of long-term stewardship to the organization look like? Are the risks and opportunities associated with climate change included? To what extent?
• How has our board adopted climate accountability? What steps are needed to do so?
• How effectively is board climate accountability integrated across board structure and processes?
• Does our board have the necessary skills and expertise to accept climate accountability and understand it as a board-level responsibility? Who are our “climate champions” on the board? Does the board culture foster these champions to engage on climate issues?
• Is the board confident they are receiving the best available information on climate risks and opportunities? Does this information prompt directors to make well-informed decisions regarding climate risks and opportunities?