Sustainability has evolved from an ethical consideration to a critical factor in long-term business planning.
With the new legislation mandating climate risk reporting and the release of the Australian Sustainability Reporting Standards (ASRS), Board members must take the lead to embed sustainability into their business strategy. As well as meeting compliance requirements where stricter regulations are becoming the norm, it is an opportunity to drive value creation.
There are many examples of where a strong focus on sustainability can lead to value creation: improved access to capital, limiting greenwashing, attracting investors, developing credible transition plans, enhancing risk management frameworks, measuring progress against targets and building trust with customers.
Integrating climate action into governance processes
Boards play a crucial role in this process. Under the Corporations Act 2001 (Cth), there has always been an imperative for directors to exercise ‘Due Care and Diligence’.
This now extends to sustainability and creates an opportunity for Boards to lead by example, challenging traditional reactive approaches to sustainability-related decision-making across all operations to ensure that sustainability becomes an integral part of their company’s strategic decision-making.
In short, the new sustainability standards set out the following governance-related disclosures:
- Describing the governance structure overseeing climate-related risks and opportunities
- Integrating these responsibilities into terms of reference, role descriptions and policies
- Ensuring the Board has, or develops, the skills necessary to oversee climate strategies
- Disclosing how frequently and in what manner the Board is informed about climate risks and opportunities
- Demonstrating how climate risks are factored into the organisation’s strategy
- Monitoring the Board’s role in overseeing target-setting and progress towards climate-related goals
- Disclosing the integration of climate governance within management structures and delegation to specific management-level roles
Corporate Boards: Compliance checkers or gamechangers?
As the ultimate decision makers, Boards are regularly updated on results and outcomes. This forms a basis for strategic decision making to ensure the company is moving in the right direction to deliver value to its shareholders.
Furthermore, Boards have a critical role in challenging company executives to rethink the way business is conducted. Executives should be asked to present robust business cases that demonstrate not only an understanding but also a commitment to delivering value through compliance with these new regulations.
The ASRS governance requirements create a solid framework for Boards to systematically address climate-related risks and opportunities. These standards are not just a regulatory exercise. They provide Boards with a compass to steer their companies towards sustainability leadership.
Two key actions can help start this process:
- Sustainability governance: By assigning sustainability-related roles, responsibilities, and objectives to the executive team, Boards can ensure that sustainability criteria are embedded throughout the organisation.
- Climate-related risk targets: By disclosing how targets are set and progress is monitored, Boards can ensure transparency and accountability in their sustainability efforts.
Boards are in a unique position to drive sustainability within their organisation. By demonstrating a solid understanding of how sustainability can drive long-term value, and by equipping themselves with the tools to plan, implement and measure the returns of a sustainability-driven business strategy, Boards can turn sustainability into a competitive advantage.