The World Economic Forum Climate Governance Initiative provides a practical route to real change

It is becoming ever more apparent that climate change presents a massive risk to the world economy, and that UK quoted businesses, their operating models and asset values, will be significantly affected both by the physical impacts resulting from global warming, and the risks posed by the transition towards a low carbon economy. The need for change is urgent; significant action must be taken in the next decade if we are to have a chance of restricting global warming to 1.5 degrees, and limiting the worst effects of extreme weather, flooding and drought.

Policies need to be implemented globally in the next 12 years to ensure net zero carbon emissions before 2050. To achieve the goal emissions, which are currently still rising, they need to peak as soon as next year.

For UK plc there will be winners and losers. Those companies which give proper consideration to the risks and opportunities presented by this challenge are likely to:

• attract capital from an increasingly conscious investor base• become employers of choice for climate-aware employees• have a brand proposition which appeals to concerned consumers• develop resilience which protects them from the physical impacts and protects asset values• take advantage of the business opportunities of the low carbon transition.

Taking the Lead

To encourage boards to debate these matters, and develop their strategies to deal with the risks and take advantage of the opportunities, the World Economic Forum (WEF) under its Climate Governance Initiative has developed a set of principles for good board governance on climate change. WEF is also encouraging the formation of individual country director networks around the world to help put these principles in place and accelerate action on the net zero carbon challenge.

The UK has taken the lead. A group of non-executive directors, who share a concern for both the financial and environmental issues at stake, have established Chapter Zero, a network of chairs, audit chairs and other non-executive directors to help move the agenda forward as a business issue. Chapter Zero was launched in the summer of this year, and already more that 250 directors have enrolled as members; business leaders who wish to become better informed on the implications of climate change for their companies and ensure there is a well-informed discussion in the boardroom.

Chapter Zero is part of a global initiative, with Chapters being established in many countries around the world. The goal is to increase awareness, and thence engagement at board level, and to provide information, briefings, and networking opportunities to raise the profile of climate change as a real, current business issue on quoted boards, building climate risk and opportunity into strategic planning, risk assessment and business as usual.

Many UK company directors (particularly those outside industries seen as most directly affected) still haven’t fully engaged with the issue, from both a regulatory and reporting perspective, and have not fully understood the risks to their balance sheets and business models over the current business planning horizon. Some UK boards have yet to have a full discussion about this, even as part of their long-term strategic planning sessions. The pressures on board time are only too evident, but this must become a serious topic of debate, since it will affect every company on every sector to some degree. Chapter Zero aims to encourage this debate and to help equip the non-executive community to engage fully in it.

Investor, consumer and regulatory pressure will only increase over the next few years.

More than Compliance

Other UK boards have addressed the issue, but have done so principally to comply with reporting requirements and emissions reduction from their buildings and travel, rather than approaching this as a core strategic challenge that requires comprehensive rethinking and medium to long-term planning. The UK has been successful in reducing emissions, but in part by ‘exporting’ them through manufacturing in other countries. Supply chains which have been put in place over decades, but may become unsustainable in the future.

Insurance and lending risks are increasingly under the spotlight, with new stress tests being put forward by the Bank of England, and the extreme weather events which are a symptom of climate change are already evident. With the current trajectory leading to a global temperature rise of approaching 4 degrees, boards need to debate the impacts on their businesses over the short as well as long term.

Chapter Zero is supported by other key UK organisations which have an interest in tackling this issue: the Institute of Chartered Accountants of England and Wales (ICAEW), the Confederation of British Industry (CBI), The Royal Institution, the Carbon Trust and Cambridge University through the newly-established Hughes Hall Centre for Climate Change Engagement, which provides access to academic expertise throughout the University.

Chairs Mark Tucker of HSBC, Sir John Kingman of L&G, Sarah Bates of Merian Global Investors and Polar Capital Technology Trust, and David Tyler of Hammerson are leading this initiative in the UK.

The non-executive community has significant influence over corporate action and the board agenda. Raising awareness and engagement in this group will be of major benefit to UK business over the next few years, as well as to the planet. This initiative is truly global. The UK cannot tackle the issue alone and, under the WEF umbrella, Chapters are being put together in countries around the world, and the network will connect board members in a wide range of sectors and geographies.Chapter Zero is a forum formed by business leaders for business leaders. To join, or find out more about the network, visit the web site at chapterzero.org.uk.

Membership is free, and there is a specially-developed toolkit for boards available to download, to enable you to assess your company’s readiness for the challenge ahead. 

Julie Baddeley is chair at the Chapter Zero steering group

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