Over the last two decades, it has become clearer that climate change will have a significant impact on business as it threatens the bottom line and creates risks to balance sheets and supply chains. The disruption caused by physical impacts (i.e. extreme weather, rising sea levels) in addition to impacts associated with the transition to a low-carbon economy (i.e. increased policy, stranded assets), could potentially lead to a variety of risks and opportunities for business. It is the role of the board and senior management to understand these potential positive and negative impacts and to ensure appropriate actions are taken to address climate-related risks and opportunities.

It is the duty of corporate boards to safeguard the long-term viability of their business. All members of the board, both executives and non-executives, need to gain a better understanding of climate change and how it might impact their business. By considering the potential impacts of climate change on their business, boards are able to get ahead of the curve and be in a better position as the impacts of climate change are realised. Intrinsically good governance should automatically include effective governance of climate-related risks and opportunities. Climate-related risk, defined as part of financial risk, should be addressed in existing governance and risk management processes. However, the unique and complex nature of climate change and the systemic risk it poses to business and society also requires special attention, and therefore a new corporate mindset is needed.

Increasingly, investors are scrutinising the actions taken by companies to manage climate-related risks and opportunities. An important element of this is the role of the board and senior management in the oversight and management of climate-related issues. To make a judgement on the efforts taken by companies and to inform investment decisions, investors rely on effective corporate disclosures. Companies are expected to disclose information about the governance and risk management processes adopted by companies to ensure climate-related risks and opportunities are embedded into strategic decision-making and business and financial planning.