The disruptive impacts of climate change are undeniable. As new risks and opportunities emerge, it’s clear that business sentiment is shifting. The next challenge for many now is bridging the information gap: organisations want to bring climate considerations into their core operations, but often feel unsure of their next move. We see it as our role to work with businesses to articulate the role of climate change in creating sustainable value.
By bringing climate change into the heart of corporate governance, organisations are better able to recognise risks and opportunities as they emerge.
Putting words into action
Following our work with the World Economic Forum (WEF), we have developed a Climate Governance Maturity Framework. This framework builds on the WEF’s Climate Governance Principles, and acts as an assessment of how well climate risks and opportunities are embedded within an organisation’s central governance framework.
It helps uncover areas where ESG governance and reporting can be improved, and equips businesses with a toolkit to assess their maturity of climate governance against each of the WEF’s eight Principles.
Taking a systematic approach, businesses can understand how well-suited their existing governance is at detecting, monitoring and managing climate change risks and opportunities, relative to the climate risk profile of the organisation.
On a practical level, the framework can be used:
- to directly enhance climate governance;
- to offer reassurance to management on existing processes;
- as a tool to assess board effectiveness; and
- to supplement internal audit or external assurance programmes.
Methodology
Climate governance phases
Using the Maturity Framework
A business diagnostic using the eight Principles of the Maturity Framework would consider management of inherent risks. Actual processes would then be compared against the examples laid out below, evaluating the effectiveness of each. These risks are set out below using the example principle of leadership Incentivisation (Principle 6):
Weak management incentives
Risk: The organisation's incentivisation scheme may not be designed to promote and reward sustainable value creation over time.
Possible implication: Staff prioritise other short-term performance goals over climate targets.
Interview question: Is the organisation's incentivisation scheme designed to promote and reward sustainable value creation over time?
Example processes:
- Performance evaluation criteria clearly lays out the importance of long-term sustainability in value creation.
- The remuneration committee includes the role of climate/sustainability as a standard feature of discussions around monitoring & rewarding performance.
If you’d like to understand more about climate or sustainability governance for your organisation, please get in touch using the contact details below.
Absent targets
Risk: Climate targets may be absent from the incentivisation model for management.
Possible implication: Management prioritises short-term performance goals over sustainable value creation.
Interview question: Are any short, medium and long-term climate targets integrated into management’s incentivisation model?
Example processes:
- Current directors and senior management have personal development plans that include climate knowledge-related goals
- Management performance evaluation criteria include short, medium & long-term climate targets, e.g. low carbon investment, carbon emissions reduction, science-based targets or inclusion in climate indices
If you’d like to understand more about climate or sustainability governance for your organisation, please get in touch using the contact details below.
Conflicting targets
Risk: Climate-based management incentives may conflict with other incentivisation targets/goals.
Possible implication: Management continues to prioritise other strategic targets over climate targets, including those that increase carbon emissions.
Interview question: Are climate-based management incentives balanced against other incentivisation targets/goals?
Example process: Incentive criteria are clearly weighted such that climate targets are balanced against other strategic (and potentially climate harming) targets/goals.
If you’d like to understand more about climate or sustainability governance for your organisation, please get in touch using the contact details below.
Ineffective targets
Risk: The organisation may not use assessment criteria to review the effectiveness of specific incentive-related climate targets.
Possible implication: The organisation is accused of greenwashing because progress cannot be measured meaningfully, or because management targets/goals are deemed too easy to meet.
Interview question: Does the organisation review the effectiveness of specific incentive-related climate targets/goals using success criteria?
Example process: The organisation reviews incentive-related climate target/goal performance on a regular basis, e.g. through staff surveys and alignment with external best practice.
If you’d like to understand more about climate or sustainability governance for your organisation, please get in touch using the contact details below.
Contact us
Daniel Hall
Senior Manager, Sustainability & Climate Change, PwC United Kingdom
Tel: +44 (0)7841 787897
