When the Philippines sent its delegation to the United Nations Climate Change Conference (COP26) in Scotland last year, the 19-person team was led by the finance secretary. It was the first time the country’s top finance official had attended the annual UN climate conference, no doubt to highlight the importance of action on climate change and the need to lead from the top to make significant changes. In the private sector, however, it seems boards are still hesitant to take full ownership of the climate crisis.
During the fourth quarter of 2021, Deloitte conducted a survey of more than 350 members of board audit committees in 40 countries. Despite being the leaders responsible for managing and responding to risks and opportunities, many respondents had not yet sufficiently placed climate change initiatives at the heart of their programs. Nearly 60% said they do not regularly discuss climate change in meetings, and almost half acknowledged that they lack the basic knowledge of climate issues needed to make informed decisions.
Given the authority and responsibility vested in Boards of Directors (Boards), it is worrying how many Board members have yet to address climate change as a Board concern, even though the world agrees that this is the greatest threat. now to our way of life. Here in the Philippines, the need for key leaders to take ownership of climate action is even more urgent as we have been identified as one of the nine countries most at risk from multiple climate hazards.
To be fair, respondents to the Deloitte survey acknowledged the enormity of the problem and the role they played in solving it: 42% said they wanted their organizations to have a faster and more robust climate response and 61% agreed that the responsibility for action lies not with any specific committee but with the whole board. However, some obstacles have prevented them from developing long-term strategies to deal with climate change. For starters, around 60% of respondents believed the lack of global reporting standards made it difficult to compare their organization’s progress against meaningful benchmarks. Hopefully that won’t be the case for long.
At COP26, the International Sustainability Standards Board of the IFRS Foundation announced that it was developing global sustainability reporting standards. It also plans to release new climate standards this year, which will reflect recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD). Established by the Financial Stability Board, the TCFD published a framework for climate-related financial disclosures in 2017 to help companies integrate climate-related risks into their existing reporting processes. Since then, more than 1,500 organizations around the world have expressed their support for TCFD, including Aboitiz Equity Ventures, Ayala Group, and Pilipinas Shell here in the Philippines.
Companies that have adopted the TCFD recommendations already have a head start, not only in complying with sustainability information, but also in taking advantage of new climate-related opportunities. They can also help frame the conversation around climate action rather than just catching up with the changing reporting and regulatory landscape, which is another barrier identified by Deloitte survey respondents.
Forty-six percent of respondents cited the ever-changing reporting and regulatory landscape as one of the factors behind their organization’s slow response to climate change. Perhaps these organizations are in wait-and-see mode, letting the dust settle before deciding on the best approach. These businesses risk being left unprepared as climate threats such as extreme weather events, changes in rainfall patterns and extreme temperatures continue to loom and begin to damage business value chains and the environment. economy. The losses we have suffered as a country from climate impacts continue to reverse the significant development gains made over the years. According to government estimates, the recent Typhoon Odette cost us 24.5 billion pesos in agricultural and infrastructure losses, not to mention nine million displaced people.
Instead of waiting for these barriers to be removed before taking action, companies need to take a more proactive approach. Best practices from survey respondents indicate that committees, boards and organizations are already investing time and energy in their climate strategy. Of these respondents, 87% said it was essential for board members to be better informed on the subject of climate change. This is key to establishing key commitments and strategies for the organization’s climate action.
Another best practice is getting more solid information from management, which 79% of respondents recommended. Board members should, for example, get a clear picture from management on climate-related risks and opportunities up and down the value chain. Board members should insist that management use scientific evidence to better understand the financial implications of climate change impacts on their businesses under different climate scenarios. This will allow the company to optimize its investments in climate resilience. Measurable goals and milestones need to be in place to get everyone on the same page. It is also important to communicate the plans, especially to investors. Sixty-three percent of respondents recommended companies publish their climate change plans to allow investors to assess a company’s risks and opportunities and their impact on the climate.
At a time when we are facing several great challenges — health crisis, climate change, transition to a new administration — it is not surprising that everyone, including business leaders, is called upon to participate in the development of solutions. The expectation is high because so are the stakes. As the governing body charged with looking after the interests of shareholders, the voice of the board will be crucial in mobilizing the private sector for climate action.
The author is a director specializing in climate and sustainability in the Risk Advisory Services division of Deloitte Philippines (Navarro Amper & Co.), a member of the Deloitte Asia Pacific Network. For comments or questions, email [email protected] Deloitte Asia Pacific Limited is a company limited by guarantee and a member firm of Deloitte Touche Tohmatsu Ltd. Members of Deloitte Asia Pacific Ltd. and their related entities, each being separate and independent legal entities, provide services in over 100 cities across the region, including Auckland, Bangkok, Beijing, Hanoi, Ho Chi Minh City, Hong Kong, Jakarta, Kuala Lumpur , Manila, Melbourne, Osaka, Seoul, Shanghai, Singapore, Sydney, Taipei, Tokyo and Yangon.