The Principles for Effective Climate Governance
Overview
Did you know that many organisations incentivise their executive directors to embed climate action within the core business?
Can you guess what DSM (a chemical company based in the Netherlands) uses as a financial incentive for Managing Board members to achieve performance goals linked to people and planet¹?
Climate governance is the structure of rules and processes an organisation puts in place to manage its responses to the financial risks and opportunities of climate change.
In this section, you will learn that incentivisation is one of the eight principles for effective climate governance developed by the World Economic Forum. These principles could help you, as a board director, to holistically address climate opportunities and risks, and align global climate goals with the organisation’s purpose, values and long-term prosperity.
By following these guiding principles for effective climate governance, you will also be fulfilling your duties as a board director and helping to ensure that the organisation has a robust climate strategy and delivery plan which is not deemed as greenwashing.
What you need to know
The World Economic Forum has designed a set of guiding principles to help board members assess and debate their organisation’s approach to climate governance and frame their thinking for how it could be made more robust.
Climate accountability on boards
Command of the subject
Board structure
Material risk and opportunity assessment
Strategic integration
Incentivization
Reporting and disclosure
Exchange
These principles aim to be both widely applicable and practically beneficial for most organisations. However, they will not be a universal fit for all companies across sectors and jurisdictions. They are not intended to be prescriptive, but instead designed as strategic tools to elevate climate discussions and foster comprehensive decision-making. This approach ensures that the intricate links between climate change and business are given thorough and careful consideration.
Principles 1 to 4 lay the foundation for Principle 5, and principles 6 to 8 help facilitate the endurance of attention to climate change issues in the long term.
Broader context
The principles and guidance build on existing corporate governance frameworks, such as the International Corporate Governance Network’s (ICGN) Global Governance Principles, as well as other climate risk and resilience guidelines, such as the recommendations of the Financial Stability Board’s Task Force on Climate- Related Financial Disclosures (TCFD).
The drafting process involved extensive consultation with over 50 executive and non-executive board directors, as well as important organisational decision-makers, including chief executives, and financial and risk officers. Input was also gained from experts from professional and not-for-profit organisations.
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Your regional Chapter can support you with tools and resources to enable effective corporate climate governance in your region.
Join a ChapterResources
1 DSM (2019). Remuneration Policy Managing Board Koninklijke DSM N.V. Online access: Managing Board | DSM
Further reading
The Chairperson’s Guide series, a collaboration between the World Economic Forum, Deloitte and the Climate Governance Initiative, equips chairs and board directors with the knowledge to lead organizations towards a sustainable future. Each guide tackles a different element of the journey, outlining key risks and opportunities, as well as key questions for boards.
The G20/OECD Principles of Corporate Governance help policy makers evaluate and improve the legal, regulatory, and institutional framework for corporate governance. They also provide guidance for stock exchanges, investors, corporations, and others that have a role in the process of developing good corporate governance.