APAC business boards lack oversight to tackle climate threats - how risk managers can help

48% of APAC organisations report that their boards lack the skills and expertise needed to provide effective oversight of the climate risks facing their companies, according to a new study.

While it is expected this will improve over the next three years, gaps will likely persist.

The survey, conducted by WTW and the Nasdaq Center for Board Excellence, also found that just three in five respondents APAC businesses say their board has dedicated sufficient time and resources to climate risk governance.

Christopher Au, director, climate and resilience hub, Asia Pacific at WTW, said: ”The survey we have conducted with Nasdaq Center for Board Excellence demonstrates there remains a deficit between expectations and skills. Improved climate governance is a defining trend to support responsible stewardship of a company.”

What does this mean for risk managers?

Without effective governance in place, organisations are potentially more exposed to a wider range of risks.

These include physical risks to operations, infrastructure or a company’s supply chain, liability risks from inadequate or misleading disclosures, and the transition risks triggered by a shift to a lower-carbon world.

At the same time, momentum is building around emerging reporting frameworks, such as the International Sustainability Standards Board’s IFRS S2 Climate-related Disclosures (which builds on and will supersede TCFD) and the Transition Plan Taskforce’s Disclosure Framework.

Each has governance as a key pillar.

“Regulations and best practices across Asia Pacific are increasingly requiring Boards to demonstrate climate skills.”

A core principle of good governance is that boards have the requisite skills and understanding of climate risk to effectively review, challenge and sign off on strategies for managing the threats.

This may increase pressure on risk managers, as boards ask them to analyse and quantify exposures. 

Meanwhile, insurers are putting greater pressure on organisations before offering protection.

Au explained: “Regulations and best practices across Asia Pacific are increasingly requiring Boards to demonstrate climate skills.

“Pressure from governments, investors and civil society will soon impact everything from a company’s credit rating to its ability to borrow and get insurance.”

”Our insurance partners are also setting expectations for those seeking insurance protection, with board training being a desirable characteristic in assessing the overall risk profile.

Shai Ganu, managing director and global leader for executive compensation and board advisory, WTW, added: “Pressure from governments, investors and civil society will soon impact everything from a company’s credit rating, valuation and cost of capital to its ability to borrow and get insurance.

”Putting climate governance front and centre on the boardroom table is a critical first step to ensuring business leaders are aware of their responsibilities and equipped to successfully steward their organisations through the transition to net zero, strategically managing the risks and opportunities in a rapidly decarbonising world.”