This briefing highlights the key outcomes from this year’s United Nations climate meeting, COP27, how it may affect you as a non-executive board director, and the resulting conversations you should have in the boardroom.
Key outcomes from COP27 and their relevance to board members
If current pledges by national governments are fully implemented, the world would be on track for 2.5 oC warming by the end of the century. Therefore to keep 1.5 oC alive, business has a crucial role to play to increase ambition and boards are critical in driving this change.
COP27 achieved several breakthroughs, including the first Just Transition Energy Partnerships (JETPs) and an agreement to provide loss and damage funding to vulnerable countries. However, the global meeting received criticism for the lack of progress at country level to keep within 1.5oC of warming by 2050, and to view this as a limit not a target. Private sector initiatives called for greater government action on climate change including the We Mean Business Coalition and a coalition of 602 investors representing $42 trillion in assets under management, in their 2022 Global Investor Statement to Governments on Climate Change.
The important role for businesses to deliver and drive climate action throughout their operations and industries has never been more urgent and was made clear by the active business participation at COP27. The role of boards in guiding their executive teams and stewarding their companies in the net zero transition will be crucial to keeping the world within the 1.5oC limit.
1. Official regulatory bodies are working hard to clarify and harmonise standards for climate-related reporting which will support transparency and help to combat greenwash
The International Sustainability Standard’s Board (ISSB), part of the IFRS (International Financial Reporting Standards), announced a new Partnership Framework to increase alignment between standards. As part of this partnership, CDP will incorporate ISSB climate-related disclosure standards into its global environmental disclosure platform.
ISSB also announced that companies will be required to use climate-related scenario analysis to inform resilience analysis.
Key questions for non-executive board directors to raise on climate reporting and disclosure:
- Is your company undertaking materiality analysis and risk planning with climate challenges included? How is this reported to the board?
- Which climate scenarios does your company use in its materiality analysis? Which board member(s) have reviewed the impact of the scenarios?
- Does your company collect and report climate impact data? How is this reported to the board?
- Is the company adhering to any of ISSB’s disclosure standards? Who from the board understands and guides climate disclosure?
- How will the ISSB Partnership Framework affect your company’s approach to collecting and disclosing data?
- Is your CEO requesting and receiving regular reports on your company’s climate-related risks? Is your CEO aware of how changing regulation may affect how your company must report and disclose climate-related information?
2. Acting on climate targets and developing credible action plans was an important focus of COP27
Tools and guidance for businesses to create and implement climate action plans were released by key initiatives including the Glasgow Financial Alliance for Net Zero (GFANZ) which published recommendations and guidance for financial institutions; as well as the Transition Plan Taskforce (TPT), announced at COP26 by the UK government, who collaborated with international partners, such as GFANZ and ISSB to develop a disclosure framework with implementation guidance for companies and financial institutions to develop gold-standard transition plans.
Key questions for non-executive board directors to raise on transition planning:
- Does your company have a clear net-zero transition pathway, with short- and medium-term targets in place?
- Who is responsible for the net-zero transition plan and is it embedded across the organisation, with accountability at CEO level as well as operational levels?
- Does your board receive regular updates on the organisation’s progress against its climate targets?
- Is your board linking C-suite and executive compensation to your company’s progress on its climate targets? How effectively does this incentivization support your company in meeting its climate targets?
3. An increasing number of organisations are facing legal challenges for not providing credible pathways and action plans to support and achieve their net zero targets
A list of robust recommendations have been published by the UN High-Level Expert Group on the Net Zero Emissions Commitments of Non-State Entities to guide and support businesses to set and attain their net zero targets, and not be undermined by greenwash. These recommendations align with a set of Net Zero Guidelines also published at COP27 by the International Organisation for Standardization (ISO), which offers a single core reference text for credible net zero action.
Key questions for non-executive board directors to raise on accountability to avoid greenwashing claims:
- Are your company’s net zero targets backed up by credible action plans? How are these targets and their associated pathways reported to the board?
- What frameworks has your board put in place to ensure there is accountability in meeting your company’s climate targets? Does this accountability apply at CEO level as well as operational levels?
- Is your board aware of any legal risks it could face, should your company face greenwashing claims on its net zero targets?
- How is the board ensuring that the CEO delivers on the climate action pledges? Is the CEO receiving regular updates on the progress of these plans?
4. The importance of public-private sector partnerships and international collaboration was reinforced over the two weeks of COP27
Businesses should engage and collaborate with state actors throughout their supply chain and with private-sector actors within and across industry, to reduce emissions across the whole value chain of their organisation. The Yearbook of Global Climate Action 2022 from the Marrakech Partnership, provides an outline on how to accelerate sectoral systems transformation, with case studies and recommendations, by strengthening international collaboration in the sectors from both parties and non-party stakeholders.
Key questions for non-executive board directors to raise on collaboration:
- How is your organisation engaging with suppliers and customers to reduce emissions across its whole value chain? How are these emissions reductions reported to the board?
- How is your organization working in collaboration with others to mobilise climate finance into projects reducing emissions? Is your board aware of the climate impacts of its investment portfolios and actively choosing to transition towards net zero or climate positive investments?
For further detail on the reports and initiatives launched at COP27, please see below.
What are the upcoming priorities for board directors?
Board directors have a critical role to play in guiding their company and its ecosystem to deliver climate action and keeping the 1.5oC limit within reach. There are tools and techniques a board director can leverage to make this happen, from requesting clear climate targets and net zero transition pathways, to ensuring the relevant climate-related data is reported to the board and CEO, to incentivising executives.
The Climate Governance Initiative supports boards of directors across the globe in making climate a boardroom priority by promoting the implementation of the Principles for Effective Climate Governance. The Initiative’s resources are board-focused and support directors at all stages of their climate journey. To follow the theme of COP27, and ensure that businesses are moving from ambition to action, read Ambition to Action: Briefing for Board Directors which summarises the four basic requirements for board directors to guide their companies to take credible climate action.
For guidance on how Chairs can influence climate action, insights and inspiration are shared in the guides The Chairpersons perspective: Shaping the boards strategic direction on climate and The Chairpersons Guide to a Just Transition.
For Further Information…
COP27 Scorecard: Progress at a glance
Setting the scene for COP27
Ahead of COP27, a number of important global reports were published. The Secretariat to the UN Framework Convention on Climate Change (UNFCCC) published its 2022 NDC Synthesis Report summing up the climate pledges of 193 parties under the Paris Agreement to show the world warming 2.5oC by 2100, 1 degree higher than the 1.5oC agreed goal. The annual World Energy Outlook report from the International Energy Agency reported a short-term boost in demand for oil and coal, with a longer-term higher demand for renewables to reduce risk and strengthen energy security, following the global energy crisis triggered by Russia’s invasion of Ukraine. The Taskforce on Climate-related Financial Disclosures (TCFD) Status Report encouragingly reported improved engagement from the private sector over the past 5 years, with a steady increase in climate-related financial disclosures, however too few organisations are disclosing in line with all 11 recommended disclosures. The Net Zero Tracker provides transparency and a level of accountability on the progress of pledges by nations, states and regions, cities and companies. These reports and tracker, as well as UN Environment Programme’s (UNEP) Emissions Gap Report and World Resource Institute’s (WRI) State of Climate Action report, set the tone for COP27 and amplified the need for urgent climate action
Key items on the COP27 agenda included climate finance, mitigation, adaptation and just transition. However, a last-minute and first time addition to the agenda was Loss and Damage, which refers to the impacts of climate change that are already causing devastation, and which countries can do little to adapt themselves to. UN chief Antonio Guterres stressed that loss and damage “can no longer be swept under the rug” and developing countries who have contributed the least to the climate crisis have been blindsided by the impacts “for which they had no warning or means of preparation”. Denmark became the first country in September 2022 to offer ‘loss and damage’ compensation for those in the most climate vulnerable regions.
The devastating physical impacts of climate change in 2022 alone, including floods in Nigeria and Pakistan, wildfires across Brazil and Europe, and droughts in China and the US, will not only directly impact businesses in the affected regions, but also disrupt several aspects of an organisation’s global value chain. These impacts supported the priority for adaptation on the COP27 agenda and a clear need for businesses to engage and invest in this topic moving forward. The Briefing Paper: Critical Business Actions for Climate Change Adaptation, published by the World Economic Forum, highlights the need for businesses to take action in this space and provides a framework for businesses to follow.
Key outcomes from COP27
Further reading for board directors:
- Principles for Effective Climate Governance
- Ambition to Action: Briefing for Board Directors
- Navigating the Climate Disclosure Landscape
- The Chairperson’s Guide to a Just Transition
- Primer on Climate Change: Director’s Duties and Disclosure Obligations
More on our Resources page.