Perspectives 2019

4. Integrated corporate governance of climate related risks & opportunities In 2018, the Taskforce for Climate Related Financial Disclosures, (co- ordinated by the Financial Stability Board) published a framework of recommendations for businesses to integrate climate risks into their annual financial reports, focusing on governance, strategy, risk management, and metrics & targets. In the coming years, programmes to achieve net-zero will become a key component of the drive to integrate climate related risks across the operations of a business. As a result, understanding and management of climate risks and opportunities will become paramount for risk management committees & Board-level teams. Will it be enough? The UK’s net zero targets will lead to a much more ambitious and systemic policy framework, integrated with economic policies. That said, there is still some debate as to whether a 2050 net zero target will be enough to help stop serious climate impacts. As mentioned earlier, the Extinction Rebellion movement is campaigning for the UK’s net zero target to be achieved, not by 2050, but by 2025 – a much more ambitious target. What we do know is that despite the variance in time, climate change is an issue that is demanding attention –hence the net zero targets. Internationally, Norway and Finland have targets for 2030 and 2035 respectively, and the EU is considering dedicating a quarter of its next budget to projects that will mitigate and manage climate change. Businesses should act now to manage future risks and impacts of a transition to a low and zero carbon economy, ensuring resilience to changing legislative requirements and rapidly changing expectations from employees, customers and suppliers. Of course, with risk comes opportunity and the financial opportunities for those willing to lead implementation of the net-zero agenda will be vast. 5. Supply chain engagement Carbon emissions reporting includes both direct and indirect impacts; its methodology is established by globally consistent frameworks such as the Greenhouse Gas Protocol. This sets out three core “scopes” of emissions, ranging from those directly caused by a business (Scope 1) to those indirectly caused (Scope 3) – for example, emissions created by a business’s suppliers, customers or tenants. Scope 3 reporting is where we are likely to see a significant step-change over the next 5 years, as companies move to more accurately manage and report on their Scope 3 operations as part of a comprehensive ‘Net Zero’ programme. This will lead to better engagement and partnerships across supply chains on sustainability issues, with shared efficiency targets. Programmes to achieve net-zero will become a key component of the drive to integrate climate related risks across the operations of a business PERSPECTIVES 14 FEATURES