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Climate Change and Corporate Governance

One of the key areas highlighted by the corporate regulator in its most-recent regulatory report into corporate governance was that of climate risk disclosure.

Some might say the regulator’s focus is timely, considering last week’s global climate change protests.

Earlier this year, Reserve Bank of Australia (RBA) Deputy Governor, Guy Debelle, spoke at 14th Annual Risk Australia Conference, drawing attention to this growing area of corporate risk.

“Climate is a challenging risk to assess but an increasingly necessary one,” said Debelle. “Businesses need to take account of both the physical risks and the transition risks. Physical risk is about the direct impact of climate on your business and the assets that it holds. What will be the effect of climate change on the price of an asset my company owns, particularly if it is a long-lived asset such as, for example, a mortgage? Transition risk is about the potential effects to businesses as the country and the economy adjusts to the changes in the climate. This includes the adjustment to policy responses required to meet the Paris objectives.”

Encouragingly, the conversation around climate change risk disclosure has been something of an evolving one in Australia.

Earlier in the year, the Australia Prudential Regulation Authority (APRA) announced they would be increasing their scrutiny on how APRA-regulated entities managed financial risks related to climate change.

In a 2018 survey put out by the prudential regulator, the results showed a third of the 38 respondents saw climate change as a material financial risk, and that the majority of banks now considered climate change-related financial risks as part of their risk management frameworks.

The survey also showed that one of the leading climate change-related financial risks is reputational risk—something for all businesses to be very aware of going into the future.

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