Directors concerned about climate change but unprepared for it

AICD managing director and chief executive Angus Armour said the results reflect “clearly, climate change is an issue that most directors grapple with, and they are alive to risk.

“However, the results also show that despite their intent, the scale of their concern and enthusiasm seems to not yet have been translated into concerted action in all boardrooms.”

The survey comes after a damning report last month from heavyweight consortium the Investor Group on Climate Change, which cast doubt on the skills and capability of directors of the nation’s 15 biggest carbon emitters to implement climate-focused strategies.

The group, representing investors with total funds under management of more than $2 trillion in Australia and New Zealand, wants director and executive remuneration to be pegged to climate targets.

While Mr Armour would not be drawn on that demand, he said remuneration was a good tool for implementing an organisation’s priorities. But, he added, “one size doesn’t fit all”.

“I think some remuneration is definitely one of the tools that every company uses in some fashion to signal the priorities, to align people to those priorities and to enforce a particular culture or to encourage particular culture,” he said.

“For some organisations ... that can be appropriate. Again, if we’re talking about some of our small business or non-profit companies, that may not fit with their general culture.”

Gender influences attitude

The survey and interviews for the report showed boards do not tie climate-related metrics or targets to remuneration structures, with just 4 per cent of all directors saying they had amended remuneration or incentive arrangements.

The report also revealed older male directors were less concerned about climate risk and governance than female directors and younger directors.

When asked about board composition, directors were moderately confident they were adequately prepared to address climate change issues, with 46 per cent agreeing that their board had the knowledge and experience to adequately address the climate governance issues facing their organisation.

Still, 28 per cent of all directors surveyed did not express that confidence.

The report comes as a legal opinion, backed by some of Australia’s top business leaders, advised that companies and their directors could be sued for “greenwashing” their commitments to achieve their net zero carbon pledges or emissions reductions targets.

Noel Hutley, SC, and Sebastian Hartford Davis warned boards might be liable for “misleading or deceptive conduct” for selectively disclosing exposures to climate change or declaring green goals while lacking credible plans to achieve them.

The missive is the third in a series of opinions by the legal experts, after a 2016 opinion said directors could be liable for failing to understand and disclose climate risks, and a 2019 opinion saying directors could be liable if they failed to act on those risks once they were known.

The opinions have been backed by the Reserve Bank of Australia, the Australian Securities and Investments Commission, the Australian Prudential Regulation Authority, the ASX corporate governance committee and the Australian Accounting Standards Board, while the Taskforce on Climate-related Financial Disclosures is now seen as the global standard for notifying shareholders of the climate-related risks faced by companies.