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At its 2019 annual meeting in Davos, the World Economic Forum (WEF) published guidance for corporate boards on how to establish climate governance at their companies.
Why is climate governance a board responsibility? Is climate change now accepted as a business risk? In my latest blog, I address these and other questions that board members may have on climate governance, and summarize the WEF guidance.
What is ‘climate governance’?
Climate governance is the structure of rules and processes a company puts in place to manage its responses to the financial risks and opportunities of climate change. There are two primary types of climate-related financial risks for business:
- Physical risks, i.e. the risk that physical effects of climate change – such as hurricanes, floods, droughts and sea level rises – could seriously damage or disrupt the company’s operations and/or supply chain, and therefore reduce its capacity to operate profitably or, in extremis, its ongoing sustainability.
- Transitional risks, i.e. the risk that the company fails to anticipate and navigate the regulatory and market transformations brought about by the global transition to a low-carbon, clean energy economy.