Are directors responsible for addressing climate change in organisations?

Birds eye view of a meeting at work

The directors on a board for an organisation are stewards for the entity they steer. Many organisations, from corporates to charities, rely on directors to ensure that their objectives are being met. Recently, there has been a push for directors to consider climate change in their decision-making processes.

Climate change reality check

The climate crisis is widely acknowledged by scientists as the most important issue of this day and age. The effects of climate change are being felt globally and locally. The IPCC has found that global warming is likely to be 1.5°C over pre-industrial temperatures between 2030 and 2052. To keep the warming limit to 1.5°C, the global community must work together to reduce greenhouse gas emissions by 45% by 2030 and must continue working to accomplish net zero emissions by 2050.

Even if these goals are accomplished, the effects of climate change, such as extreme temperatures, intense weather events, sea level rise and increased ocean acidity, will still be present with a 1.5°C temperature rise. However, the impacts will be far less than if we let the temperatures continue to rise to 2.0°C.

Business implications: ethical, financial, legal

With a problem so huge, the world needs its leaders to step up and face this challenge. As leaders, directors are responsible for a company’s wellbeing. Beyond financial stability, directors may need to change institutional mindsets, promote ethics within a company or, most urgently, take a stand on climate change. In fact, climate action is number one on the list of top five issues directors can’t ignore, named by Institute of Directors New Zealand.

Ethically, companies and organisations can’t afford to be negligent in their attention to climate change. Acknowledging and mitigating climate change is the right thing to do and will become more and necessary as time goes on. But the responsibility of directors goes beyond the ethical implications. Climate change has real financial implications as well.

These financial implications include business disruptions, resourcing issues and the cost of a possible mandatory transition to a low-carbon economy. Since climate change can impact finances, the Aotearoa Circle’s Sustainable Finance Forum believes that directors are legally obligated to proactively acknowledge and account for climate change as a part of their legal obligation to protect company assets.

Benefits of acting now

Directors who take climate change seriously will be better able to create an adaptable and sustainable business environment that will be resilient to change. Incorporating climate change into business decisions will place companies in a better position for addressing government-driven climate change initiatives and regulations when the time comes.

Although this may not be an immediate consideration in New Zealand, there are many initiatives in the works that are bound to impact businesses in the future. For example, the government is considering mandatory climate-related disclosures for a range of businesses and are committed to a significant reduction of emissions by 2050.

Be a leader

Are you a director on a board? Consider your responsibility to your shareholders and stakeholders (and the world!) to promote sustainability and address climate change on an organisation-wide level. You can start by understanding how climate change may impact your organisation, share these findings and the decisions you make around climate change issues with your stakeholders and ensure that your board has the skills and experience required to make informed, climate-competent decisions going forward.

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