Climate Risk Governance Guide

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Climate risk
governance guide
An introductory resource for directors
on climate risk governance

CLIMATE RISK GOVERNANCE GUIDE
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Table of contents
Purpose and scope of this guide 3
Part 1: What do I need to know
about climate change? 5
What is climate change? 5
Why is climate change an issue for
organisations and boards? 6
Which industries are impacted
by climate change? 8
Climate change key concepts 8
Part 2: How do I start my
board’s climate change journey? 9
Where are we now? 10
Governance — embedding sound
foundations, processes and structures 11
The board in action — strategic
planning and risk oversight 11
Reporting12
Reflecting on your progress — next steps 12
Part 3: What are the duties and
expectations of me as a director? 13
Directors’ duties 13
Climate change and the best
interests of the company 14
Duty of due care and diligence and
taking a proactive approach to
climate governance 14
Climate change and
misleading disclosure 15
Heightened regulatory and
stakeholder expectations 15
Litigation risks 17
Appendix 1: Glossary of key climate terms
and leading frameworks 18
Key climate terms 18
Governance, management disclosure
— current leading frameworks 20
Appendix 2: World Economic
Forum principles 23
Appendix 3: How the Board
Readiness Check works 24
Appendix 4: Resource library 28

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This guide is an introductory resource for directors
on climate change risk governance.
It provides a plain-language introduction to
fundamental climate change concepts, and
considers this issue in the context of the non-
executive directors’ role and duties. This guide is
general – it does not go into detail nor comment
on specific duties that may apply in any
given circumstance.
This guide considers the following questions from
the perspective of a non-executive director:

Part 1: What do I need to know about
climate change?
• Introduction to key climate change
concepts and risks to develop your
understanding.

Part 2: How do I start my board’s climate
change journey?
• Key questions to ask yourself and your
board about how to get climate change
onto your agenda, establish good
governance structures, consider strategy
and risk, and report and disclose.

Part 3: What are the duties and
expectations of me as a director?
• How your duties as a director might
interact with climate change risk and
opportunity, and the legal and strategic
issues you and your organisation may
need to consider.
Directors starting on their climate change journey
might want to think about some of the questions
posed in the practical guidance in Part 2 and then
use Parts 1 and 3 to build their understanding of
this issue.
Climate Governance Initiative Australia
The AICD is the host of the Climate Governance
Initiative Australia which assists in supporting
our members in meeting the challenges and
opportunities of governing climate change risk.
As host of the Australian Chapter of the Climate
Governance Initiative, our members have
access to a global network of experts in risk
and resilience and to non-executive directors
who are leading their organisations’ governance
response to climate change.
The Climate Governance Initiative (CGI) is an
active and rapidly expanding network of over
20 bodies globally, whose Chapters promote the
World Economic Forum Climate Governance
Principles for boards and effective climate
governance within their jurisdictions. The
principles are set out in Appendix 2 of this guide.
The principles support directors to gain
awareness, embed climate considerations into
board decision making, and understand and act
upon the risks and opportunities that climate
change poses to their organisations.
CGI chapters have already been established
in many comparable countries, including the
UK, US (hosted by the National Association of
Corporate Directors), Canada (hosted by the
Institute of Corporate Directors) and France.
Purpose and scope
of this guide

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GET CLIMATE CHANGE
ON THE AGENDA
This will enable the board to discuss climate-related
risks or opportunities which are not being addressed in
order to have a deeper conversation
READ

Part 1: What is climate change?

Appendix 1: Glossary of key climate terms and
leading frameworks
CONSIDER

Part 2: Where are we now?

Appendix 3: The Board Readiness Check tool

ASSESS OPPORTUNITY
To ensure your organisation is in a position to benefit
from the opportunities that climate change presents
(e.g. transition to a low-carbon economy)
READ

Part 3: Directors’ duties
CONSIDER

Part 2: The board in action - strategic planning and
risk oversight

ASSESS RISK
To ensure your organisation is prepared for the impact
of climate change on your organisation
READ

Part 1: Why is climate change an issue for
organsiations and boards?

Part 3: Directors’ duties
CONSIDER

Part 2: The board in action - strategic planning and
risk oversight

EXAMINE GOVERNANCE STRUCTURES,
STAKEHOLDERS AND REPORTING
To ensure your organisation is prepared to address
the issue and understand stakeholder sentiment and
reporting expectations
READ

Part 3: Heightened regulatory and stakeholder
expectations

Part 3: Climate change and misleading disclosure
CONSIDER

Part 2: Governance - embedding sound
foundations, processes and structures

Part 2: Reporting
How do I use this guide to start
my board’s climate journey?

TAKE ACTION
Once your board has taken these steps, take action and focus on continuous improvement
How? Agree an action plan, convey to management, implement, monitor and review
Monitor AICD for updates and more guides and assistance

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PART 1:
What do I need to know
about climate change?
WHAT IS CLIMATE CHANGE?
Climate change is a phenomenon that occurs
from the accumulation of greenhouse gases
(including carbon dioxide, nitrous oxide and
methane) in the atmosphere.
Scientists have been in broad consensus about
the human contribution to climate change, for a
number of decades. Human industrial activity has
resulted in volumes of greenhouse gas emissions
significantly higher than the natural baseline. These
activities include (for example) the combustion of
hydrocarbon-based fossil fuels (such as coal, oil and
gas) for both stationary energy and transport, the
release of methane from livestock and nitrogen in
agricultural fertilisers, and the clearing of nature’s
gas ‘sinks’ (such as forests and peats).
The additional volume of emissions has caused the
layer of greenhouse gas to thicken. As it thickens,
it traps more and more heat within the Earth’s
atmosphere. Global average temperatures now
exceed 1.1°C above those of pre-industrial times,
and more than 1.4°C above pre-industrial averages
over Australia. Scientists have warned that current
emissions trajectories may result in catastrophic
warming in excess of 4°C by the end of this century.
In response, 196 countries have signed the Paris
Agreement, under which governments have
committed to reducing economic emissions to
a level consistent with limiting global warming
to well below 2°C above pre-industrial averages,
and to pursue efforts to limit warming to 1.5°C.
This commitment, in turn, will require the global
economy to transform to a ‘net zero emissions’
norm (that is, one in which the volume of
greenhouse gas emissions produced is balanced
with the volume of emissions taken out of the
atmosphere) before 2050, and to halve its emissions
footprint by 2030.

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PART 1: WHAT DO I NEED TO KNOW ABOUT CLIMATE CHANGE?
1. Refer to the following key physical risk resources: Intergovernmental Panel on Climate Change (IPCC), Climate Change 2021: The Physical Science Basis, Summary for Policy
Makers, August 2021, https://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_SPM.pdf. ; Regional fact sheet - Australasia, https://www.ipcc.ch/report/
ar6/wg1/downloads/factsheets/IPCC_AR6_WGI_Regional_Fact_Sheet_Australasia.pdf. ; and Interactive Atlas, https://www.ipcc.ch/report/ar6/wg1/#InteractiveAtlas.
See further Appendix 1 Glossary of key climate terms and leading frameworks and Appendix 4 Resources library.
WHY IS CLIMATE CHANGE AN ISSUE FOR
ORGANISATIONS AND BOARDS?
Climate change has rapidly evolved from one seen as an
ethical and environmental issue to one that presents material
financial risks and opportunities for organisations – across
short, medium and long terms. This evolution has been driven
by developments in the climate science, and a stark shift in
institutional investor, debt finance, regulator, market and
community expectations. Today, many employees also see
their organisation’s environmental impact as an important
factor impacting their choice of employer.
Climate change creates two primary financial risks: the
physical impacts of a changing climate; and risks in the
transition to a net zero emissions economy.
A failure to manage these risks can, in turn, give rise to
significant risks to a company’s reputation and ‘social licence
to operate’ and, ultimately, exposure to litigation risks.
These risks are discussed in turn below:
• Physical risks1
– to the natural and built environment.
These include both acute risks associated with an
increase in the frequency and intensity of extreme
weather events, such as coastal and inland floods,
extreme winds and precipitation, soil contraction,
heatwaves and drought, and gradual onset impacts such
as rising sea levels, increasing average temperatures
and rainfall variation. These, in turn, have significant
consequences for ecosystem loss, human health, the
integrity of the built environment and supply chains.
Consequences for organisations may include:

- Damage to assets and project delays – Increasing
frequency of extreme weather events can heighten
the risk of physical damage and associated costs to
projects, plant and equipment.

- Uninsurability of projects and assets – Climate change
can impact on insurance coverage and uninsured
loss implications, together with additional capital
expenditure requirements.

- Supply chain disruptions –Severe weather events (such
as extreme precipitation leading to inland flooding)
may disrupt operations and/or supply chains, which
can impact revenue.
Physical risks compound over time and become significantly
worse under high emissions scenarios. However, scientists
have made clear that even under ‘low emissions’ scenarios,
where emissions are significantly reduced to a level that
limits warming to 1.5°C above pre-industrial averages, both
physical risks are now (and will continue to be) significantly
elevated versus historical experience.
Figure 1: Australian average annual temperatures – observed and simulated to 2040
Source: Bureau of Meteorology, State of the Climate 2020, http://www.bom.gov.au/state-of-the-climate/future-climate.shtml.

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• Economic transition risks2
– as governments, capital
markets and the real economy shift in pursuit of low-
emissions targets. Transition risks include policy and
regulatory responses (such as emissions reduction laws,
trade laws and tariffs, prudential regulation and heightened
planning and building codes), technological developments
(in areas such as renewable energy and electric vehicles)
and shifts in stakeholder preferences (including of investors,
insurers, customers and the community).
The attention of governments, regulators and investors
has recently shifted to achieving the ‘stretch’ target
under the Paris Agreement, of limiting global warming
to 1.5°C above pre-industrial averages, in an effort to
limit the worst physical impacts associated with climate
change. Achieving that target would require a significant
transformation in the global economy – which in turn
implies the potential for heightened economic transition
risks (and opportunities) over short, medium and long
term time horizons.
Already, governments representing more than 70% of the
global economy have announced policies to transition
their economies to ‘net zero’ by 2050 (including every
Australian State and Territory) – in many cases with
commitments to halve emissions by 2030 as they work
towards the longer-term target. These global emissions
reduction commitments are increasingly being applied
across adjacent areas of regulation – including tariffs
and trade, and capital regulatory requirements.
• Litigation transition risks – arise from a failure to
manage or disclose the physical or economic transition
risks. This includes areas such as directors’ duties,
misleading disclosure (in annual reports, fund raising
documents and contracts), contractual disputes (in
areas from force majeure to pricing pass-throughs) and
nuisance/negligence (where third parties suffer damage
due to a failure of an asset owner to adapt their assets
to foreseeable climate-related risks). Further examples
of these risks are set out in Part 3 of this guide.
In 2021, even despite the global COVID-19 pandemic, the
World Economic Forum’s Global Risks Report identified a
failure of climate change action as the greatest risk to the
global economy, and climate-related issues as five of the
top six greatest risks.3
The risks and opportunities associated with climate
change, and their potential financial impacts, is
summarised by the Taskforce on Climate-related Financial
Disclosures below.
2. Refer top the following key economic transition risk resources: Task force on Climate-related Financial Disclosures, Recommendations of the Task Force on Climate-related
Financial Disclosures, June 2017, https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf.; Sustainability Accounting Standards Board,
Climate Risk: Technical Bulletin, April 2021, https://www.sasb.org/knowledge-hub/climate-risk-technical-bulletin/.
See further Appendix 1 Glossary of key climate terms and leading frameworks and Appendix 4 Resource library.
3. World Economic Forum, 2021, The Global Risks Report 2021, 19 January, https://www.weforum.org/reports/the-global-risks-report-2021, (accessed 15 August 2021).
Figure 2: Climate-related risks, opportunities and financial impacts
Source: Taskforce on Climate-related Financial Disclosures, 2017, Implementing the Recommendations of the TCFD, June, p 5.

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WHICH INDUSTRIES ARE IMPACTED BY
CLIMATE CHANGE?
Climate change risks and opportunities permeate
most economic sectors and industries. Analysis by the
Sustainability Accounting Standards Board (SASB)
concludes that 68 out of 77 industry sectors across the
economy are subject to material climate-related risks.4
Although climate risk cuts across almost every sector, its
impacts are differentiated depending on factors such as
the relevant market and geography.
The influential Taskforce on Climate-related Financial
Disclosures (TCFD) has recognised 16 industrial sectors
that are at ‘high risk’ of material climate-related risk.
These sectors traverse the vast majority of the Australian
economy, including:
• financial services – banks, insurance companies,
asset owners (including superannuation funds) and
asset managers;
• energy – oil and gas, coal, electric utilities;
• transportation – air freight and passenger transport,
maritime, rail, trucking, automotive and components;
• materials and buildings – metals and mining,
components, construction materials, capital materials,
real estate management and development; and
• agriculture, food and forest products – beverages,
agriculture, packaged foods and meats, paper and
forest products.
In addition, the health implications of climate change
are widely recognised as being material to organisations
involved in health and human services.
CLIMATE CHANGE KEY CONCEPTS
Appendix 1 of this Guide includes a glossary of key climate
terms and leading frameworks to help you understand the
relevant foundational concepts. It covers commonly used
climate terms such as:
• Emissions – scopes 1, 2 and 3;
• ‘Net zero’ emissions;
• The Paris Agreement;
• Stress testing and scenario analysis.
It provides an overview of two current leading frameworks:
• Taskforce on Climate-related Financial Disclosures (TCFD)
• Sustainability Accounting Standards Board (SASB)
It also references the leading international authority
on climate science, greenhouse gas emissions and the
impacts of climate change:
• The 6th Assessment Report of the United Nations
Intergovernmental Panel on Climate Change (IPCC).
4. Sustainability Accounting Standards Board, 2021, Climate Risk Technical Bulletin, https://www.sasb.org/wp-content/uploads/2021/05/Climate-Risk-Technical-
Bulletin2021-042821.pdf, (accessed 15 August 2021).

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PART 2:
How do I start my board’s
climate change journey?
This Part of the guide provides a practical guide to assist directors of organisations
near the beginning of their climate change governance journey. It should not
be taken as a checklist of initiatives to guarantee due care and diligence in the
context of your particular board and organisation. However, it is a useful ‘ready
reckoner’ to help you take a constructive governance approach, and to assist in
building organisational capacity to consider climate change.
STAGE 1 STAGE 2 STAGE 3 STAGE 4 STAGE 5
WHERE ARE WE NOW
– BOARD, COMPANY,
MANAGEMENT?
A considered
approach to
complex issues
• Board dynamics
• Assessing
readiness and
capacity
• Introducing
climate change
onto the agenda
APPROPRIATE
GOVERNANCE
STRUCTURES
Embedding sound
foundations,
processes and
structures
• Embedding
appropriate
governance
structures
ACCOUNTABILITY
AND DISCLOSURE
Connecting the
dots to financial
positions and
prospects
• Considering the
implications for
financial position
and prospects
• What should we
disclose?
THE BOARD IN
ACTION – STRATEGY
AND RISK OVERSIGHT
The key
importance of a
forward-looking
lens
• Assessing
materiality
• Strategic
considerations
• Risk monitoring
and oversight
REFLECTING ON
YOUR PROGRESS
Next steps
• Continuous
improvement
• Further resources

PART 2: HOW DO I START MY BOARD’S CLIMATE CHANGE JOURNEY?
WHERE ARE WE NOW?
Climate change is an evolving and complex issue with
the potential to significantly impact on organisational
risk, opportunity and strategy. As with any dynamic issue,
consideration may require your organisation to embark
upon a course of reflection and change. In beginning
your climate governance journey, it is important to take a
constructive approach that is sensitive to the varying levels
of understanding around the board table.
CLIMATE CHANGE IN OUR ORGANISATIONAL
CONTEXT — BOARD DYNAMICS
• Why is it important that the board considers climate
change, now? What are the evolving dynamics
(in regulation, in markets and in key stakeholder
preferences) that objectively elevate its significance to
the organisation, its risk, opportunities and strategy?
You can use Part 1 of this guide to help you consider
the relevant issues through a financial, reputational
and liability lens – from potential impacts on your
business operations and supply chains, to resource
costs and availability, shifts in policy and regulation,
to technological developments, and shifts in the
preferences of key stakeholders (investors, insurers,
customers, employees and the community).
• How should climate change be considered in the context
of the best interests of our organisation, its purpose and
values? What are the views of our key stakeholders?
• Does the board have an appropriate level understanding
of climate change, its causes, its dynamics, and
potential risks (and opportunities) for our organisation?
What additional capacity-building may be required?
All board members should have an appropriate level
of understanding of key climate change concepts
such as those in Part 1 of this guide. The greater
the level of potential impacts on your organisation,
the greater the level of understanding that will be
necessary to allow you to undertake informed inquiry
and oversight.
You can also refer to the additional resources set out
in Appendix 4 of this guide. Depending on the size and
nature of your organisation, it may be appropriate to
arrange specific briefings for the board and executive
on current climate-related issues and relevant impacts.
• What should be done to introduce climate change on
the board agenda? What reports or other inputs do we
require from management? Do we need external advice
or assistance?
• Can we have an effective and constructive conversation
about climate change and its dynamics around the
board table? Do we need to consider how we work
together to build consensus? What will be the effect on
board dynamics? Should we bring an external party in to
assist us with this process?
ASSESSING READINESS AND CAPACITY —
ENSURING YOUR BOARD IS PREPARED
• Would the Board Readiness Check assist my board in
getting ready to discuss this topic?
The Board Readiness Check has been developed
by Chapter Zero in the UK with the support of the
Berkeley Partnership and Hughes Hall Centre for
Climate Engagement. It is a useful self-assessment
tool for boards to gauge their current level of
readiness as an organisation and as a collective. It
has been designed to enable boards to self-assess
their ‘Current’ state, understand its implications and,
based on this, specify their intended ‘Target’ state
regarding climate change.
The Board Readiness Check is available here.
A summary of how the Board Readiness Check tool
works is set out in Appendix 3 of this guide.
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GOVERNANCE — EMBEDDING SOUND
FOUNDATIONS, PROCESSES AND STRUCTURES
• How are issues associated with climate change
integrated into our board governance (strategic and
oversight) responsibilities? Is this issue receiving
adequate time and focus within the board/committee
agenda?
Should this be a matter for the full board, included
within the remit of a sub-committee (for example,
audit risk) or, for your organisation, does it warrant
a specific sustainability sub-committee?
• What is our organisational policy on climate change?
Do we need a specific policy document?
• In what part(s) of the organisation does operational
responsibility for climate-related issues (identification,
assessment, management and monitoring) reside?
Who is responsible and accountable for this issue within
management? Are we satisfied that relevant staff (or
the experts that they consult) have the appropriate
competence and resources?
Appropriate responsibilities and resourcing will
depend on the nature of your organisation and its
climate-related issues.
• What reports should be made to the board or its
committees, and how often?
• How do we as a board, and senior management (including
legal, governance, finance and risk teams), ensure that we
are staying up to date in this dynamic area?
What resources do we require to do so? What
information and updates are made available by
relevant regulators and industry bodies? Do we need
specialist advice?
• Are our remuneration structures aligned with our
strategic approach to climate change, or do they create
perverse incentives (for example that may favour
investment in assets at risk of being stranded in the
transition to a low-carbon economy)?

THE BOARD IN ACTION — STRATEGIC
PLANNING AND RISK OVERSIGHT
• What are the relevant risks and opportunities for our
organisation – across the short, medium and long term?
At its core, climate change disrupts ‘business as
usual’. This can present both risks and opportunities.
Consider issues such as:

· Have we considered how the changing climate
may impact on our operations and supply chain?

· Are there emerging regulatory or policy
developments that may signal future
market directions?

· What are our competitors doing – and planning
to do?

· What are emerging customer trends and pressures,
and what feedback can we gather?

· What opportunities may this bring for new product
or service development?

· What do our employees think?

· How can a proactive approach help in building
our reputation and brand, and assist us to access
competitive capital and insurance? What are the
consequences if we do not progress?

· How do we balance competing commercial or
resourcing considerations, and short vs
long-term interests?
• What are the relevant risk metrics and benchmarks?
What guidance is available from leading frameworks
such as the Taskforce on Climate-related Financial
Disclosures and Sustainability Accounting Standards
Board? Are there any industry-specific benchmarks
and guides? See Appendix 1 for an overview of these
leading frameworks.

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• How should we consider both climate risk and
opportunity in our normal strategic planning process?
Do we understand the role of stress testing and scenario
analysis to assist in strategic planning?
Stress testing and scenario analysis (as set out in
the Recommendations of the TCFD) have emerged
as key tools to help organisations consider climate
risks and opportunities across the broad range of
potential futures. For some organisations, this will
be a complex exercise involving detailed economic
modelling. For others, it will be a more qualitative
and intuitive process to help you consider how
climate change may impact on ‘business as usual’,
and to sense check your strategy across the range of
potential risks.
See Appendix 1 for more detail on stress testing and
scenario analysis.
• How should climate change be integrated into our
existing risk management framework? Is this framework
appropriate to adequately evaluate and manage
identified climate risks?
• How do we determine which climate-related risks
present a material exposure to our strategy or operations
(in both absolute and relative terms), over what
relevant timeframes? On what basis is the threshold of
‘materiality’ set?
• Is the risk acceptable: that is, within our risk appetite
and tolerance? What actions can we develop to mitigate
the risk consequences to bring it within tolerances?
• How do climate-related risks and opportunities impact
on other risks and opportunities identified by the
organisation? How should we manage it in relation to
those other risk and opportunities?
• How does management determine the order of priority
of each relevant climate-related risk/opportunity?
• Should we introduce specific targets to reduce our
own greenhouse gas emissions? Should this include a
pathway to ‘net zero’ emissions? Over what timeframes?
Should these be aspirational or firm commitments? Have
we considered the strategic and resourcing implications
of those targets, and have a credible plan (or, at a
minimum, a genuine, demonstrable intention to work
towards that target) to achieve them? What are the
reputation and competitive implications if we do not set
and pursue such targets?
• How is management held accountable for implementing
the climate-related policies and strategies set by
the board?
• Do we have the right leadership for the strategic
direction that we want the organisation to take? Do
we need to recruit management with differing skills,
experience or mindset?
REPORTING
• Where we have assessed climate change as a material
issue, how have we assessed its potential impact on our
financial position and prospects?
• For reporting entities, what are the appropriate
disclosures that should be made in our directors’ report
(including the Operating and Financial Review where
relevant). Have we had regard to the Recommendations
of the TCFD – and if not, why?
Directors should refer to guidance issued by ASIC
(Regulatory Guide RG247 (Effective Disclosure in
an Operating Financial Review)) and the AASB
and AUASB (Joint Guidance on Climate-related and
other emerging risk disclosures (April 2019)).
• Have we put specific questions to the CFO (where
applicable) about the impact of material climate
assumptions on asset useful lives, valuation and
impairment, liability provisions, revenues, expenditures
and cash flows? What are the key assumptions made,
and metrics or statements requiring the most judgment?
Has there been adequate disclosure in the financial
statements? Are we satisfied with the effectiveness of
our systems of internal control and risk management
that sit behind this assessment?
• Has our reporting been subject to external audit or
assurance?5
How was that decision reached?

REFLECTING ON YOUR PROGRESS —
NEXT STEPS
Once your board has these strong governance foundations
in place, it is important to approach climate change
governance through the lens of continuous improvement.
This is particularly important for this issue, due to its fluidity.
We have set out some more advanced resources in
Appendix 4 of this guide that can support you in taking the
next step to embed climate change governance maturity in
your organisation.
5. Not all reporting will be subject to audit, many NFP entities are not required to have their accounts audited. Where a board is obtaining information from management, and
resources permit, they may want external assurance over that information.

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PART 3:
What are the duties
and expectations of
me as a director?
DIRECTORS’ DUTIES
This Part of the guide considers the relevance of
climate change in the context of non-executive
directors’ core duties. While this guide focuses on
duties that apply to company directors incorporated
under the Corporations Act 2001 (Cth) (Corporations
Act), the directors or their equivalents (for example,
management committee members/officers) of
most not-for-profit organisations (NFPs) and
government business entities (GBEs) have similar
duties under common law and specific legislation
(such as applicable state and territory incorporated
associations laws, and public entity governance laws).
Refer here for the AICD’s tool on directors’ duties for
further information.
Where climate change is a material and foreseeable
risk to an organisation, directors will have
obligations to seek to address it as part of their risk
oversight role. To enliven directors’ duties, the risk
(or opportunity) will need to be both foreseeable and
material. The bar for foreseeability is relatively low
and means ‘not far-fetched or fanciful’. Whether a
climate change risk (or opportunity) is material, will
require consideration of the organisation’s strategy,
financial position and prospects in the unique
context of that organisation.
This does not mean that climate change necessarily
needs to be prioritised by directors over any
other foreseeable risk. But it does mean that
directors should inform themselves of the impact
of climate change risks and/or opportunities to
their organisation. If they determine such risks
and/or opportunities are material, directors must
appropriately consider these in their governance of
strategy and risk oversight – in the same manner as
they would any other foreseeable financial risk or
opportunity.
In particular, climate change may be relevant to
a director’s duty to act in the best interests of the
company and their duty of care and diligence.

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PART 3: WHAT ARE THE DUTIES AND EXPECTATIONS OF ME AS A DIRECTOR?
CLIMATE CHANGE AND THE BEST INTERESTS
OF THE COMPANY
Section 181 of the Corporations Act requires directors to
act in good faith, for a proper purpose, and to act in the
best interests of the company. There has been a long-
standing debate on the extent to which directors can or
should have regard to the interests of external stakeholders
in discharging their duty to pursue the ‘best interests’ of
their organisation. Historically, ‘climate change’ was often
considered a ‘stakeholder issue’ - a purely environmental,
‘non-financial, ethical’ issue, and its consistency with the
‘best interests’ of the organisation questioned.
The stakeholder debate has moved on however, with
recognition that consideration of stakeholders such
as customers, employees, the environment and the
community is often consistent with organisational long-
term interests. Put more bluntly, a failure to appropriately
manage those stakeholder interests often risks the best
interests – including financial interests – of the company
and its shareholders/members.
Former Australian High Court judge and financial services
royal commissioner Hon Kenneth Hayne, has gone further
in publicly stating that: ‘a director acting in the best
interests of the company must take account of, and the
board must report publicly on, climate-related risks and
issues relevant to the entity’.6
Whether the foreseeable risks associated with climate
change have a material impact on a corporation’s strategy,
financial position or prospects, the magnitude of that
impact and the appropriate organisational response, are
matters that can only be determined in the unique context
in which an organisation operates.
DUTY OF DUE CARE AND DILIGENCE AND TAKING A
PROACTIVE APPROACH TO CLIMATE GOVERNANCE
Section 180 of the Corporations Act imposes a duty of
due care and diligence upon company directors. This duty
of care and diligence has both subjective and objective
features. Directors are held to the objective standard of
conduct – that of a reasonable person – in the subjective
circumstances faced by that director, in that company.7
The duty of care is an obligation of robust process, rather
than one that dictates any substantive outcomes.
It requires directors to take a proactive and robust
approach to interrogation of foreseeable risks, and
potential material impacts, for corporate strategy and
risk management.
This requires directors to exercise independent judgment
when evaluating contemporary climate change
information and anticipated impacts on their organisation.
Directors have a positive obligation to apply an inquiring
mind to their role, bringing to bear knowledge that
they ought reasonably have known about the entity, its
functions and operational context.
Directors should take a proactive approach to considering
how climate-related risks can be managed and
opportunities seized – particularly in those sectors with
significant climate-related exposures (such as financial
services, resources, energy, infrastructure, materials and
manufacturing, transportation, agribusiness and real
estate, amongst others). This requires directors to form
their own assessment and make their own decisions as to
what action, if any, is to be taken. The questions in Part 2
of this guide aim to support directors in this work.
The greater the materiality of the potential risks, the
greater the degree of interrogation and assurance,
supported by advice from management and/or
independent expert advice, that may be warranted.
Hutley opinions on directors’ duties and
climate change
A series of high-profile opinions by Noel Hutley SC and
Sebastian Hartford-Davis of Counsel in 2016, 2019 and
2021 (known as ‘the Hutley Opinions’) are useful reading
for directors embarking on their climate governance
journey. Refer here, and here, for an overview and links.
6. K Hayne, 2019, “What Kenneth Hayne says about climate change”, Financial Review, 9 December, https://www.afr.com/politics/federal/what-kenneth-hayne-says-about-
climate-change-20191206-p53hiw, (accessed 15 August 2021); J Fernyhough, 2019, “Hayne rebukes directors on climate risk failure”, Financial Review, 9 December, https://www.
afr.com/policy/energy-and-climate/hayne-rebukes-directors-on-climate-risk-failure-20191206-p53hnd, (accessed 15 August 2021).
7. ASIC v Adler (No 1) (2002) 168 FLR 253 at [372] (4) per Santow J; ASIC v Rich (2009) 75 ACSR 1 at 623 [7242] per Austin J.

aicd.com.au/cgia 15
CLIMATE CHANGE AND MISLEADING DISCLOSURE
Where climate change presents material risks to the best
interests of an organisation, including for its financial
position and prospects, directors should also consider how
adequately the risks have been disclosed.
Misleading disclosure occurs where a reasonable person
in the audience would be led into error by the overall
impression that is conveyed. Silence or omission may give
rise to a misleading impression.
Directors must exercise due care and diligence in ensuring
that their organisation does not mislead the market on the
impacts of climate change and the response to that risk –
in the same way as for any other financial risk issue.
Misleading disclosure is most likely to apply to listed
companies (and other reporting entities) that produce
public reports for shareholders. Climate-related misleading
disclosure risks are particularly acute in relation to annual
reports, for which directors are required to attest that a
‘true and fair view’ is presented of a company’s financial
position and performance, and to approve a directors’
report that (amongst other things) outlines material
risks to a company’s prospects.8
Heightened regulatory
and investor expectations on the kinds of climate-related
information required to present a ‘true and fair view’ of
corporate position and prospects, and litigation trends in
this area, are discussed below.
However, misleading disclosure should be considered by all
types of entities, including private companies and NFPs.
This is because misleading disclosure risks can arise in
other kinds of public statement or external representation
– from contracts, to statements made to donors, to
advertising in trade or commerce. This includes misleading
or deceptive conduct under the Australian Consumer
Law (and equivalent State fair trading legislation), which
governs the way in which organisations seek to promote
the ‘green credentials’ of their organisation, or a specific
product or service.
One high-profile misleading disclosure risk associated with
climate change is known as ‘greenwashing’. In general
terms, greenwashing is conduct or representations that
under-states the impact of climate change risks to a
company, over-states the robustness of a company’s
response to those risks, or otherwise over-emphasises
its environmental credentials. ASIC has stated that
greenwashing is an area of its enforcement focus.
HEIGHTENED REGULATORY AND
STAKEHOLDER EXPECTATIONS
The regulatory environment in Australia has changed
significantly in the last five years. Australian regulators
acknowledge the foreseeability of climate-related financial
risks and are largely aligned on the economic/financial
significance of climate-related risk.
Compliance with the governance, strategy, risk
metrics and disclosure framework set out in the TCFD
Recommendations has evolved from ‘gold standard’
to ‘base expectation’ for listed companies in many
jurisdictions. One of the key TCFD Recommendations
relates to stress-testing and scenario planning of business
strategies against a plausible range of climate futures.
REGULATORY EXPECTATIONS
• ASIC

- Regards climate change as a ‘systemic risk that
could have a material impact on the future financial
position, performance or prospects of entities’.9

- ‘Reminds’ listed companies to consider both physical
and transitional climate risk, develop and maintain
strong and effective corporate governance, which
supports prudential risk management and where
climate risk is material, to consider the TCFD
recommendation when reporting.10

- ‘Greenwashing’ is an area of focus for ASIC. ASIC
Commissioner Cathie Armour has encouraged boards
to ‘look out for greenwashing and to ask whether their
company’s disclosure around environmental risks and
opportunities… accurately reflects their practices in
this area’.11
• APRA

- Expects regulated entities to understand and manage
climate-related financial risks through stress testing
and scenario analysis and disclose decision useful
information to the market.

- Development of a draft Prudential Practice Guide12
is underway and APRA will incorporate climate
vulnerability assessments into its stress testing of
the financial system (starting with Australia’s largest
banks this year).
8. Corporations Act 2001 (Cth) sections 295–297.
9. The regulator has updated its regulatory guidance on climate-related financial disclosures made in both offer documents (RG228) and Annual Report Operating and Financial
Reviews (RG247) to refer to the kinds of climate risks described by the TCFD.
10. ASIC, 2021, Corporate Finance Update – Issue 4, March, https://asic.gov.au/about-asic/corporate-publications/newsletters/asic-corporate-finance-update/corporate-
finance-update-issue-4/, (accessed 15 August 2021).
11. C Armour, 2021, “Green clean”, Company Director, 1 July, https://aicd.companydirectors.com.au/membership/company-director-magazine/2021-back-editions/july/the-
regulator, (accessed 17 August 2021).
12. APRA, 2021, Prudential Practice Guide: Draft CPG 229 Climate Change Financial Risks, April, https://www.apra.gov.au/sites/default/files/2021-04/Draft%20CPG%20229%20
Climate%20Change%20Financial%20Risks_1.pdf, (accessed 15 August 2021).

aicd.com.au/cgia 16
• RBA

- Deputy Governor acknowledged that the physical and
transition risks associated with climate change as
‘likely to have first-order economic effects.’13
• Australian Accounting Standards Board and Auditing and
Assurance Standards Board

- Released a joint bulletin stating that climate change-
related assumptions have the potential to be a
material accounting estimation variable, impacting
on asset useful lives, fair valuation, impairments and
provisions for bad and doubtful debts. Although the
guidance is ‘voluntary’, the standard setters made
clear that they ‘expect’ it will be applied by report
preparers and auditors.14

- The Australian position on integration of material
climate-related assumptions into financial statement
accounting estimates has now been echoed in
guidance by the body responsible for international
accounting standards, IFRS.15
INVESTOR EXPECTATIONS
An increasing proportion of mainstream institutional
investors (including the world’s largest investor, BlackRock,
members of the US$52 trillion Climate Action 100+, IIGCC,
PRI,and Net Zero Asset Managers’ Initiative) have intensified
commitments to engaging with investee companies on
climate-related financial risk and disclosure, and set out
accelerated expectations in relation to disclosures. More
recently, focus has centred on how investees plan to
transition to ‘net zero’ in line with Paris Agreement goals.
OTHER STAKEHOLDERS
Stakeholders also have increasingly heightened
expectations in relation to how an organisation considers
and addresses climate change. These include:
• Customers – both consumers and business customers
increasingly expect their suppliers to demonstrate
environmental sustainability in a transparent way. A failure
to meet customer expectations can result in significant
reputational damage, and ultimately lead to a decline in
demand, revenue, competitiveness and profitability.
• Employees – employees are placing increased importance
on alignment between their personal values and those
of their employer. Environmental sustainability, and
climate change in particular, have emerged as key issues
for staff in choosing, and remaining with, an employer.
Organisations with poor climate credentials may find it
increasingly difficult to attract, and retain, top talent.
• Community – changing and increasingly demanding
environmental and social standards from communities
across Australia. Heightened community pressure
may lead to adverse publicity and scrutiny of strategy
and decisions.
NFPs may need to consider the perspectives of
important stakeholders like members, volunteers,
donors, funders and the general public. For example,
a sporting club may need to consider the expectations
of its sponsors on the issue of climate change or have
in place an extreme heat policy. Government funding
grants may also include expectations around climate
change action.
13. G Debelle, 2021, Climate Change and the Economy with the RBA’s Guy Debelle, Public Forum, Centre for Policy Development,17 August, https://cpd.org.au/2019/03/climate-
change-economy-rbas-guy-debelle-public-forum-march-2019-2/, (accessed 17 August 2021).
14. Australian Accounting Standards Board and Australian Auditing and Assurance Standards Board, 2019, Climate-related and other emerging risks disclosures: assessing financial
statement materiality using AASB/IASB Practice Statement 2, April, https://www.aasb.gov.au/admin/file/content102/c3/AASB_AUASB_Joint_Bulletin_Finished.pdf, (accessed
15 August 2021).
15. IFRS Foundation, 2020, Effects of climate-related matters on financial statements, November, https://www.ifrs.org/content/dam/ifrs/supporting-implementation/
documents/effects-of-climate-related-matters-on-financial-statements.pdf, (accessed 15 August 2021).

aicd.com.au/cgia 17
16. McVeigh v REST NSD1333/2018, Federal Court of Australia, http://climatecasechart.com/climate-change-litigation/non-us-case/mcveigh-v-retail-employees-
superannuation-trust/, (accessed 15 August 2021).
LITIGATION RISKS
Climate-related litigation has increased over recent years
with a number of cases, both in Australia and globally,
testing the bounds of government and corporations’
obligations. Some of the most significant recent actions,
in both Australia and internationally, are set out below.
Whilst not all set a binding formal precedent for Australian
organisations, they illustrate the increasing proactivity
of strategic litigants in this space, and may influence the
development of the law in our own jurisdiction.
Recent examples include:
• Emissions reduction targets and credibility of strategy.
In May 2021, the Dutch District Court found that Shell’s
failure to reduce emissions on a trajectory consistent
with the Paris Agreement was a breach of its duty of
care to, and human rights of, Dutch citizens, and ordered
it to increase its emissions reduction policy to 45% by
2030 (against a 2019 baseline). The Court was critical
of Shell’s prevailing emissions reduction policy, finding
that it was ‘not concrete, has many caveats and is
based on monitoring social developments rather than
the company’s own responsibility for achieving a CO2
reduction.’
• Duty of due care and diligence – investing on behalf
of superannuation beneficiaries. In July 2018, an
Australian superannuation fund member sued the
corporate trustee of his superannuation fund REST
alleging a breach of its duty of care on the basis that it
had failed to integrate climate change considerations
into its investment strategy. The matter settled in
November 2020. REST agreed to take further steps
to ensure its investment managers actively consider,
measure, manage and report back on the financial
risks posed by climate change, to commit to a target
of net zero carbon footprint for the fund by 2050,
and to report on portfolio holdings, risk management
processes and decarbonisation progress in line with the
Recommendations of the TCFD.16
• Financial risk disclosures – misleading disclosure and
due care and diligence. In July 2020, a claim was filed in
the Federal Court against the Commonwealth alleging
that the investor information statements issued in
relation to Commonwealth bonds were misleading or
deceptive contrary to section 12DA(1) of the ASIC Act.
This was alleged on the basis that the disclosures did
not contain adequate information about the economic
and fiscal risks associated with climate change, and
associated credit risks. The claim further alleges that, in
approving the disclosure documents, the Secretary to the
Department of Treasury and the CEO of the Australian
Office of Financial Management failed to discharge
their statutory obligation to exercise due care and
diligence under section 25(1) of the Public Governance,
Performance and Accountability Act 2013. The claim
remains on foot, and is unlikely to be heard until 2022.
• Negligence – failure to take reasonable precautions
against the reasonably foreseeable risks associated
with climate change. In January 2019, the South
Australian Royal Commission into the Murray-Darling
Basin Plan published a report concluding that that the
Murray Darling Basin Authority (Authority) had acted
with gross negligence and maladministration in the
manner in which it had (or, more particularly, had not)
taken climate-related issues into account in discharging
its obligation to implement and manage the Murray-
Darling Basin Plan. The Commissioner pointed to failures
including the Authority’s (a) reliance on historical data,
rather than climate change-adjusted forecasts, as the
primary source of authority, (b) treatment of the best
available science as an ‘inconvenience to be worked
around’ rather than as a key input to decision-making,
and (c) its deferral of consideration of climate change
until future strategic cycles.
• Misleading advertising. In February 2020, BP was forced
to withdraw its Advancing Possibilities – We’re Working
to Make Energy Cleaner marketing campaign following
a complaint filed by public interest law firm ClientEarth,
alleging that the ads conveyed a misleading impression
of BP’s focus on low-carbon energy when its investment
in renewable activities represented less than 4% of its
exploration and development spend.

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APPENDIX 1:
Glossary of key climate terms
and leading frameworks
KEY CLIMATE TERMS
• Emissions ‘scopes’ –1, 2 and 3
To mitigate the effects of climate change, a
wide-scale transition to a low carbon economy
is required. In order for an entity to set a credible
emissions reductions strategy the organisation’s
emissions profile must first be understood. An
effective emissions reduction strategy covers
emissions across an organisation’s full value
chain, which includes Scope 3 emissions.
The Greenhouse Gas Protocol categorises
greenhouse gas emissions by ‘Scopes’:

- Scope 1 – direct emissions from entity owned or
controlled sources.

- Scope 2 – indirect emissions from the generation
of purchased electricity, steam, heating and
cooling consumed by the entity.

- Scope 3 – includes all other indirect emissions
that occur in an entity’s value chain.
Scope 3 emissions are often the largest part of an
entity’s emissions portfolio and also the hardest
to measure.
• ‘Net zero’ emissions
Net zero emissions refers to achieving a balance
between greenhouse gas emissions produced by
humans and greenhouse gases removed from
the atmosphere. In 2018, the United Nations’
Intergovernmental Panel on Climate Change
Special Report Global Warming of 1.5°C made
clear the imperative of reaching net zero global
emissions by 2050 in order to mitigate the effects
of global warming. In order to reach net zero by
2050, global emissions must be halved by 2030.
As outlined above, countries around the world
with economies representing more than 70%
of greenhouse gas emissions have announced
‘net zero emissions’ economic targets – including
the EU, the UK, South Korea, Japan and China.
In Australia, all States and Territories have
announced net zero by 2050 targets, with a
number (including Victoria) having incorporated
these into law. As at the date of publication, the
Commonwealth Government has not formally
committed to a net zero by 2050 target although
it has said that it would like to achieve that
goal as soon as possible and preferably by 2050.
These emissions reduction commitments are
increasingly being applied across adjacent areas
of regulation – including tariffs and trade, and
capital regulatory requirements.

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APPENDIX 1: GLOSSARY OF KEY CLIMATE TERMS AND LEADING FR AMEWORKS
• IPCC and AR6
The Intergovernmental Panel on Climate Change (IPCC) is a United Nations body that assesses the state of science
relation to climate change. In August 2021 the IPCC published its 6th Assessment Report Climate Change 2021: The
Physical Science Basis (AR6). The report is a product of peer review of more than 14,000 individual studies (themselves
all peer-reviewed), by scientists from 66 countries. It is considered the ‘gold standard’ of climate science.
AR6 concludes that human-induced climate change is already affecting every region across the globe. The Australasia
regional fact sheet (refer to Figure 3 below) details regional changes that include average warming of 1.4°C, an
increase in heat extremes and extreme bushfire danger days, decrease in cold extremes, sea level rise contributing to
increased coastal flooding and shoreline retreat, and projected increases in heavy precipitation and inland flooding.
AR6 includes an online tool, the Interactive Atlas, that allows users to explore specific impacts on their region under
different warming scenarios, across different timeframes.
Figure 3: Regional fact sheet - Australasia
Source: IPCC, 2021, “Regional fact sheet–Australasia”, Sixth Assessment Report, p 1.

aicd.com.au/cgia 20
• Paris Agreement
In December 2015, 196 countries signed the Paris
Agreement, under which governments have committed
to reducing economic emissions to a level consistent
with limiting global warming to well below 2°C above
pre-industrial averages, and to pursue efforts to limit
warming to 1.5°C. This commitment, in turn, will require
the global economy to transform to a net zero emissions
norm before 2050.
Under the Paris Agreement, countries must submit
their own emissions reductions targets, referred to as
Nationally Determined Contributions (NDC). Australia
submitted its first NDC in 2015 (and reaffirmed this in
2020), with a target to reduce greenhouse gas emissions
by 26% to 28% below 2005 levels by 2030. Every five
years, countries are required to submit more ambitious
NDC targets under the review and rachet mechanism of
the Paris Agreement. Australia has not yet committed to
increasing its emissions reduction targets.
• Stress testing and scenario analysis
Climate change has catalysed a ‘new normal’ for risk
– one in which historical experience alone no longer
provides a proxy for the present or future. However,
the range of plausible climate futures presented by
the changing climate remains radically uncertain.
Stress testing and scenario analysis over a plausible
range of climate-futures has emerged as a critical
risk management and strategic planning tool for an
organisation in the face of such uncertainty.
Scenario analysis is a process for identifying and
assessing the potential implications of a range
of plausible future states, and provides a tool for
organisations to consider how the future might look if
certain trends continue or certain conditions are met.
The necessity to apply a forward-looking lens has been
reinforced by stakeholders across the board (including
investors, regulators and credit ratings agencies).
For some organisations, stress testing and scenario
planning will be a complex exercise involving detailed
economic modelling. For others, it will be a more
qualitative and intuitive process to help you consider
how climate change may impact on ‘business as usual’,
and to sense check your strategy across the range
of potential risks. Either way, at its core, it is a risk
management tool to allow organisations to consider
the spectrum of climate-related risks in the face of
uncertainty. At one end of the spectrum – what if there is
a swift and disorderly transition to a net zero economy?
What does that mean for our organisational strategy
and business plan? What would we need to do to thrive
in that transition? At the other extreme – how would
we be impacted if the climate tips into a high warming
scenario? How are we placed to manage the relevant
physical risk impacts to our business and supply chains?
What risk management and adaptation strategies can
we sensibly consider, now?
Key guidance on stress testing and scenario analysis is
found in the Recommendations of the TCFD.
GOVERNANCE, MANAGEMENT DISCLOSURE –
CURRENT LEADING FRAMEWORKS
Mainstream investors now identify climate change-related
disclosures as decision-useful, particularly in high-risk
sectors (such as energy, infrastructure, transport and
agriculture). Both the physical and economic transition
risks associated with climate change are characterised by
uncertainty. However, the one thing that is certain about
climate change is that the physical and market landscape
of the future will look very different.
Tools to assist corporate risk management in the face
of such uncertainty, such as stress testing and scenario
analysis, have emerged as critical inputs for diligent
governance and strategic planning. Two of the current
leading frameworks are the Taskforce on Climate-related
Financial Disclosures (TCFD) recommendations, and
the Sustainability Accounting Standards Board (SASB)
reporting standards.

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TASKFORCE ON CLIMATE-RELATED
FINANCIAL DISCLOSURES
The recommendations of the G20 Financial Stability Board’s
Taskforce on Climate-related Financial Disclosures are a
recognised key benchmark against which to assess the
strategic approach of corporations to managing climate
change risk. The TCFD recommendations:
• provide a framework for the kind of information that
must be analysed and disclosed in order to truly and
fairly represent (and enable assessment of) the impact of
climate-related risks on financial positions and prospects;
• call for information to be disclosed in a comparable and
consistent form that is decision-useful for investors,
lenders, and insurance underwriters; and
• contemplate not only the disclosures themselves, but the
metrics and targets, strategy and governance processes
within which climate risk issues are managed.
Figure 4: The TCFD recommendations and supporting recommended disclosures
Governance Strategy Risk management Metrics and targets
Disclose the organisation’s
governance around
climate-related risks and
opportunities
Disclose the actual and
potential impacts of
climate-related risks
and opportunities on the
organisation’s businesses,
strategy, and financial
planning where such
information is material.
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material.
Recommended Disclosures Recommended Disclosures Recommended Disclosures Recommended Disclosures
a)
Describe the board’s
oversight of climate-
related risks and
opportunities.
a)
Describe the climate-
related risks and
opportunities the
organisation has
identified over the short,
medium, and long term
a) Describe the
organisation’s processes
for identifying and
assessing climate-related
risks.
a)
Disclose the metrics used
by the organisation to
assess climate-related
risks and opportunities
in line with its strategy
and risk management
process.
b)
Describe management’s
role in assessing and
managing climate-
related risks and
opportunities.
b)
Describe the impact of
and opportunities on the
organisation’s businesses,
strategy, and financial
planning.
b) Describe the
organisation’s processes
for managing climate-
related risks.
b)
Disclose Scope 1, Scope
2, and, if appropriate,
Scope 3 greenhouse gas
(GHG) emissions, and the
related risks.
c)
Describe the resilience
of the organisation’s
strategy, taking into
consideration different
climate-related scenarios,
including a 2°C or
lower scenario.
c)
Describe how processes
for identifying,
assessing, and managing
are integrated into the
organisation’s overall risk
management.
c)
Describe the targets used
by the organisation to
manage climate-related
risks and opportunities
and performance against
targets.
Source: TCFD, 2017, Final Report: Recommendations of the Task Force on Climate-related Financial Disclosures, June, p 14.
A central requirement of the TCFD is forward-looking stress
testing and scenario analysis across the plausible range
of climate futures, including a ‘well below’ 2°C emissions
pathway consistent with Paris Agreement targets. Since
the publication of the TCFD Recommendations in 2017,
market expectations have continued to focus on the Paris
Agreement ‘stretch’ target of 1.5°C.
The TCFD highlights governance as a foundational building
block of effective climate-related risk and opportunity
management. Without effective climate-related
governance structures in place, a company will not be
able to make informed strategic decision or appropriately
manage the risks.
Investors, regulators and other stakeholders increasingly
expect the TCFD recommendations to be used to navigate
the physical, economic transition and liability risk exposures
relevant to their organisation. In addition, disclosure in
accordance with the TCFD recommendations could in fact
be used as a strategy to publicly demonstrate compliance
with directors’ duties and disclosure obligations.

aicd.com.au/cgia 22
SUSTAINABILITY ACCOUNTING STANDARDS BOARD
The Sustainability Accounting Standards Board (SASB)
publishes sustainability reporting standards in relation
to ESG issues that are material to investors, including
climate-related issues. Resources include a Conceptual
Framework and Application Guidance, and 77 industry-
based Sustainability Disclosure Standards across 11 sectors
(consumer goods, extractives and minerals processing,
financials, food and beverage, health care, infrastructure,
renewable resources and alternative energy, resource
transformation, services, technology and communications
and transportation).
In April, SASB released its 2021 edition of the Climate
Risk Technical Bulletin (Bulletin). The Bulletin provides
recommendations on how industry-specific climate risk
can be more effectively measured, managed and, disclosed
thereby ensuring markets have the information they need to
price climate-related risks (and opportunities). The Bulletin
finds that climate risk is likely to materially affect almost
every one of the 77 industries covered by SASB’s materiality
map, although the nature of those risks, and likely impact
on the organisation varies across different sectors.17
The Bulletin identifies the categories of climate-related
risk that are most likely to be material for an organisation
in each sector (classified across physical, transition and
regulation risks), and the risk metrics (both quantitative
and qualitative) that are likely to provide decision-useful
information to investors in relation to each risk. Each
sector-specific Standard contains additional detail on the
relevant sustainability issues faced by organisations in
the sector, and further commentary on the risk metrics
recommended for disclosure.
The SASB Standards are voluntary but are favoured by
many investors.
SASB recently merged with the International Integrated
Reporting Council (IIRC) to form the Value Reporting
Framework. This merged entity intends to harmonise the
SASB Standards with another leading ‘integrated reporting’
framework, the IIRC’s Integrated Reporting Framework.
INTERNATIONAL SUSTAINABILITY STANDARDS BOARD
The IFRS Foundation, which is responsible for the
International Accounting Standards that form the basis
of Australian Accounting Standards, is establishing an
International Sustainability Standards Board. This will
set standards for reporting on an entity’s performance
on material sustainability issues. It has announced its
intention to release its first standard, on climate-related
reporting, in mid-2022. If incorporated into Australian
standards, this may further change how Australian entities
report on climate matters.
17. SASB, 2021, Climate Risk – Technical Bulletin, 12 April, https://www.sasb.org/knowledge-hub/climate-risk-technical-bulletin/, (accessed 15 August 2021).

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APPENDIX 2:
World Economic
Forum principles
1. Climate accountability on boards - The board
is ultimately accountable to shareholders for
the long-term stewardship of the company.
Accordingly, the board should be accountable for
the company’s long-term resilience with respect
to potential shifts in the business landscape that
may result from climate change. Failure to do so
may constitute a breach of directors’ duties.
2. Command of the (climate) subject - The board
should ensure that its composition is sufficiently
diverse in knowledge, skills, experience and
background to effectively debate and take
decisions informed by an awareness and
understanding of climate-related threats and
opportunities.
3. Board structure - As the stewards for long-term
performance and resilience, the board should
determine the most effective way to integrate
climate considerations into its structure
and committees.
4. Material risk and opportunity assessment - The
board should ensure that management assesses
the short-, medium- and long-term materiality
of climate-related risks and opportunities for the
company on an ongoing basis. The board should
further ensure that the organisation’s actions
and responses to climate are proportionate to
the materiality of climate to the company.
5. Strategic and organisational integration -
The board should ensure that climate
systemically informs strategic investment
planning and decision-making processes and
is embedded into the management of risk and
opportunities across the organisation.
6. Incentivisation - The board should ensure that
executive incentives are aligned to promote the
long-term prosperity of the company. The board
may want to consider including climate-related
targets and indicators in their executive incentive
schemes, where appropriate. In markets where it
is commonplace to extend variable incentives to
non-executive directors, a similar approach can
be considered.
7. Reporting and disclosure - The board should
ensure that material climate-related risks,
opportunities and strategic decisions are
consistently and transparently disclosed to all
stakeholders – particularly to investors and,
where required, regulators. Such disclosures
should be made in financial filings, such
as annual reports and accounts, and be
subject to the same disclosure governance as
financial reporting.
8. Exchange - The board should maintain regular
exchanges and dialogues with peers, policy
makers, investors and other stakeholders to
encourage the sharing of methodologies and to
stay informed about the latest climate-relevant
risks, regulatory requirements, etc.

aicd.com.au/cgia 24
APPENDIX 3:
How the Board
Readiness Check works
CLIMATE CHANGE ACTION LEVEL
1. UNPREPARED
Not sufficiently prepared
to mitigate or adapt
to the risks of climate
change – or realise
the opportunities of
transitioning to the low-
carbon economy.
2. COMPLIANT
Aware of and taking
action to meet current
rules and regulations –
but typically not going
beyond legal obligations
to address bigger
and broader risks and
opportunities.
3. PROACTIVE
Aware of the risks of
climate change and the
opportunities presented
by being a low-carbon
business. Proactively
taking action to address
these which goes beyond
regulations – but is
typically focused within
their business and is
perhaps behind others
in their sector in level
of ambition.
4. LEADING
As for ‘3. Proactive’, but
the action they are taking
is ahead of others in their
sector in level of ambition
and achievement – and
extends across their end-
to-end value chain in
partnership with suppliers,
consumers, producers of
complementary products,
etc. Typically, they are
also leveraging their
low carbon stance as a
source of commercial and
competitive advantage.
The Board Readiness Check18
has been
developed to enable boards to self-
assess their current state, understand its
implications and, based on this, specify
their intended target state and establish
their need for change.
The following outline is adapted from the
Chapter Zero: A climate change boardroom toolkit
(pp 15-20), with Chapter Zero’s permission (a member
of the Climate Governance Initiative network).
4 KEY LEVELS OF ATTAINMENT
Within the tool, there are a number of questions. Each question
has a set of four sample answers each representing a stage on the
continuum of Climate Change Action from ‘1. Unprepared’ to
‘4. Leading’.
For each question, the user is asked which answer best represents
‘Current’ state and intended ‘Target’ state.
In broad terms, the four stages on the continuum are
characterised as follows:
18. Chapter Zero: The Directors’ Climate Forum, Board Readiness Check,https://www.chapterzero.org.uk/board-readiness-check/, (accessed 26 August 2021).

aicd.com.au/cgia 25
APPENDIX 3: HOW THE BOARD READINESS CHECK WORKS
5 AREAS OF ASSESSMENT
The questions asked are divided into the following 5 areas of assessment:
A. FOOTPRINT: Understanding and improving your carbon footprint
Covers knowing what your carbon footprint is and its key drivers and taking measurable action to
reduce it.
B. COMPLIANCE: Adhering to the rules on climate change
Covers being clear on duties and obligations under current climate change and emissions rules and
regulations and being sighted on and prepared for policy/regulatory change.
C. SENTIMENT: Ensuring your business is in tune with stakeholder sentiment on climate change
Covers being clear on and aligned/in tune with stakeholder sentiment on climate change. Stakeholder
groups include investors, customers (B2B), consumers, and current/prospective employees.
D. RISK: Ensuring you’re prepared for the impact of climate change on your business
Covers being clear on how the business and operations will be impacted by climate change in future
and having governance, disclosures, plans and resources in place to mitigate any physical and
transition risks (e.g. with regards to supply chain, asset values, financial/cost base, customer base,
compensation claims, etc.).
E. OPPORTUNITIES: Ensuring your business benefits from the transition to a low-carbon economy
Covers being clear on and acting to realise opportunities to deliver enhanced business performance
through the transition to a low carbon economy (e.g. reducing operational cost (resource efficiency),
gaining access to government incentives, leveraging positive impact on brand and reputation to
achieve competitive advantage, etc.).

aicd.com.au/cgia 26
WHAT ARE THE OUTPUTS PROVIDED BY THE SELF-ASSESSMENT – AND HOW TO USE THEM
The tool surfaces ‘current’ vs ‘target’ comparisons for each question, to help the user understand where
and to what extent the business will need to change to achieve its intended ‘target’.
UNPREPARED
No. We get the concept of a carbon footprint in general terms, but we
are not clear in specific terms what it is or how you measure it.
COMPLIANT
We know in measurable terms, but only in the sectors and facilities
which are subject to emissions regulations such as European ETS.
PROACTIVE
We know in measurable terms for all aspects of our in-house
operations – but we still struggle with end-to-end value chain.
LEADING
We have a clear, measurable view for all aspects of our end-to-end
value chain, both internally and externally.
Based on the answers selected for each
question, the Board Readiness Check
returns illustrative implications to
provide guidance on how the ‘current’
and ‘target’ selections made might
impact the business.
The contrast in ‘current’ vs. ‘target’
risk/performance may prompt the
user to adjust their answers for ‘target’
state ambition.

aicd.com.au/cgia 27
WHEN AND HOW TO USE THE BOARD READINESS CHECK
The Board Readiness Check can be used in a wide variety of different scenarios. For example:
1. This is the first time you’re discussing climate action as a board and want to establish your current state and its
implications – and define a target state ambition as a precursor to determining and planning the change required to
achieve your agreed ‘target’.
2. You’re not sure if or why climate action is relevant to your business – and want to find out more about the subject and
the relative current state of your business in order to take an informed view.
3. You’re already on the journey and want to do a quick ‘litmus test’ of the progress you’re making – and what areas for
development remain.
4. You think you’ve already done everything that needs to be done with respect to climate action – but want to undertake
a high-level review to make sure.
STEP 1
Get each board member to fill in
the Self-Assessment in the Board
Readiness Check, based on their
own personal understanding and
views – prior to getting them
together as a group to discuss it.
Doing this has the following
benefits:
i. By using the Self-Assessment
they’ll get familiar with the
issues and potential implications
of different choices.
ii. You’ll get to see any key
disparities in understanding of
‘current’ state and intended
‘target’ state.
iii. You’ll know in advance where to
prompt for evidence to back up
claims (e.g. if someone has said
they think they are ‘4.Leading’
on ‘A. Understanding and
improving your carbon footprint’
- and everyone else has said
‘1. Unprepared’).
STEP 2
Summarise what the aggregated
results tell you.
i. Where is the board aligned on
‘current’ state and where is it
not?
ii. What are the implications
of ‘current’ state in terms of
business performance and risk?
(that is, the need for action).
iii. Where is the board aligned on
‘target’ state and where is it not?
STEP 3
Bring the board together to review.
i. Discuss the aggregate results
above - and to align on (a)
‘current’ state, (b) implications
of ‘current’ state and consequent
need for action/change, and (c)
intended ‘target’ state.
ii. Agree on action plan to
undertake more detailed analysis
and planning to identify specific
improvements.
iii. Agree how to factor climate
action into board level
governance on an ongoing basis
and monitor and report back
on progress and achievement to
the board.
As a whole-of-board exercise, it may be useful to use a facilitator to manage the process.

aicd.com.au/cgia 28
APPENDIX 4:
Resource library

GENERAL OVERVIEW OF CLIMATE CHANGE-RELATED
FINANCIAL RISKS
PHYSICAL RISKS
1. IPCC, Climate Change 2021: The
Physical Science Basis, Summary
for Policymakers, August 2021
Physical Science Basis, Australasia
Regional Fact Sheet, August 2021
3. Climate Governance Initiative/
Chapter Zero, Primer on physical
climate risk, July 2020
4. World Economic Forum,
Global Risks Report 16th edn,
January 2021
5. IAG and US National Center for
Atmospheric Research, Severe
Weather in a Changing Climate
(Insurance), v2 September 2020
6. Bureau of Meteorology and CSIRO,
State of the Climate 2020,
November 2020
ECONOMIC TRANSITION RISKS
7. International Energy Agency, Net
Zero by 2050 –A roadmap for the
global energy sector, May 2021
8. BlackRock, Larry Fink’s 2021
Annual letter to clients and CEOs
9. Guy Debelle, Deputy Governor of
the Reserve Bank of Australia,
Speech: Climate Change and
the Economy, March 2019 and
Financial Stability Review in
October 2019
10. Deloitte, A new choice:
Australia’s climate for growth,
November 2020

UNITED NATIONS, SCIENCE
AND THE PARIS AGREEMENT
11. UNFCCC, Paris Agreement
and Nationally-Determined
Contributions (overview)
Physical Science Basis, Summary
for Policymakers, August 2021
13. United Nations, Sustainable
Development Goals

aicd.com.au/cgia 29
APPENDIX 4: RESOURCE LIBR ARY

LITIGATION RISK AND
DISCLOSURE
14. Climate Governance Initiative
and Commonwealth Climate and
Law Initiative, Primer on Climate
Change: Directors’ Duties and
Disclosure Obligations – In support
of the Principles for Effective
Climate Governance, June 2021
15. Sustainability Accounting
Standards Board, Climate Risk
Technical Bulletin, April 2021
16. AASB, Climate-related and
other emerging risks disclosures:
assessing financial statement
materiality using AASB Practice
Statement 2, April 2019
17. Deloitte, TCFD reporting
requirements and assurance
considerations: A guide for audit
committees, 2021
18. ASIC, What is ‘greenwashing’ and
what are its potential threats?
July 2021
19. ASIC – RG247 (OFRs) and 228
(prospectuses)
20. MinterEllison, Misleading
climate-related disclosure: are
your verification and disclosure
processes defensible? July 2020
21. Noel Hutley’s 2016 Legal Opinion
on Climate Risks and Directors’
Duties, the 2019 Update and the
2021 Update

CORPORATE GOVERNANCE
AND DIRECTORS’ DUTIES
22. Climate Governance Initiative
and Commonwealth Climate and
Law Initiative, Primer on Climate
Change: Directors’ Duties and
Disclosure Obligations – In support
of the Principles for Effective
Climate Governance, June 2021
23. Climate Governance Initative/
Chapter Zero, Acclimatise and
MinterEllison, Questions to
assist non-executive director
oversight of physical climate risk
management, July 2020
24. Deloitte, Remuneration
Committee update – considering
ESG and climate change,
February 2021
25. Deloitte, TCFD reporting
requirements and assurance
considerations: A guide for audit
committees, 2021
26.
Climate Governance Initative
/Chapter Zero, Change
Management Toolkit
27. Wolff Olins and Chapter Zero,
How can brands battle the
climate crisis?, February 2020
28. MinterEllison, Top five
considerations for meaningful
climate-related corporate
governance, June 2020
29. MinterEllison, The ‘next normal’:
climate change risk governance in
a pandemic age, May 2020
30. Law Institute of Victoria, Directors’
duties: At your peril, July 2021
31. ACSI, ACSI Launches New Climate
Change Policy, April 2021
32. MinterEllison, New Hutley Opinion:
What does it mean for directors?,
April 2021
33. MinterEllison, Understanding
directors’ duties and climate
risk: An interview with Philippe
Joubert, CEO of Earth on Board,
May 2021

POOR ESG GOVERNANCE
AND UNDERPERFORMANCE
34. Principles of Responsible
Investment, Making voting
count: principle-based voting
on shareholder resolutions,
March 2021
35. New York Times, Companies See
Climate Change Hitting Their
Bottom Lines in the Next 5 Years,
4 June 2019
36. Sydney Morning Herald, Mark
Vaile quits Newcastle University
chancellor role amid backlash over
coal links, June 2021
37. The Guardian, ExxonMobil and
Chevron suffer shareholder
rebellions over climate, May 2021

STRESS TESTING AND
SCENARIO PLANNING
38. TCFD, Final Report,
Recommendations od the
Taskforce on Climate-related
Financial Disclosures, June 2017
39. TCFD, Annex, Implementing
the Recommendations of the
Taskforce on Climate-related
Financial Disclosures, June 2017
40.
IPCC, Climate Change 2021: The
Physical Science Basis, Interactive
Altas, August 2021 (note – physical
risk only)
41. CSIRO, Climate Change in
Australia, Projection Tools
(note – physical risk only)
42. Queensland Government,
Climate change (physical) risk
management tool for small
business, September 2020
(note – physical risk only)

08021-1_21
About the author
MinterEllison is the Asia-Pacific’s largest commercial law firm, with offices across Australia, New Zealand, mainland China and
Hong Kong, Mongolia, and the United Kingdom. The firm’s dedicated Climate Change Sustainability Risk Governance team is
an integral part of its leading Environmental, Social and Governance practice.
Sarah Barker is a Partner, and Head of Climate Change Sustainability Risk Governance at MinterEllison. She has more than
two decades’ experience as a corporate lawyer, and is regarded as one of the world’s foremost experts on climate change
risk assessment, strategy and liability. She brings a unique practical lens as a director of one of Australia’s largest super
funds, the $30 billion Emergency Services State Super. Sarah is a faculty member of the Cambridge University’s Institute for
Sustainability Leadership’s Earth on Board programme, and has been a facilitator of the AICD’s flagship Company Directors’
Course for more than 15 years. She was the instructing solicitor on a brief to Mr Noel Hutley SC widely cited as authority on
directors’ duties and climate change.
Charlotte Turner is a Senior Associate in the Climate Change Sustainability Risk Governance team at MinterEllison. Building
on her background as an experienced litigation and administrative disputes lawyer, Charlotte now specialises in climate
risk through a finance, corporate governance and liability lens, with a particular focus on the public sector, health and
agribusiness. Charlotte has particular expertise in the management of climate related risks and opportunities in commercial
procurement and supply contracts. She is a leading member of the Asia Pacific team of The Chancery Lane Project, a
global initiative assisting lawyers to integrate sustainability risks and opportunities into contracts without compromising
commercial risk-return.
About us
The Australian Institute of Company Directors is committed to strengthening society through world-class governance.
We aim to be the independent and trusted voice of governance, building the capability of a community of leaders for
the benefit of society. Our membership includes directors and senior leaders from business, government and the
not-for-profit sectors.
Disclaimer
The material in this publication does not constitute legal, accounting or other professional advice. While reasonable care
has been taken in its preparation, the AICD does not make any express or implied representations or warranties as to the
completeness, reliability or accuracy of the material in this publication. This publication should not be used or relied upon as
a substitute for professional advice or as a basis for formulating business decisions. To the extent permitted by law, the AICD
excludes all liability for any loss or damage arising out of the use of the material in the publication. Any links to third party
websites are provided forconvenience only and do not represent endorsement, sponsorship or approval of those third parties,
any products and services offered by third parties, or as to the accuracy or currency of the information included in third party
websites. The opinions of those quoted do not necessarily represent the view of the AICD. All details were accurate at the time
of printing. The AICD reserves the right to make changes without notice where necessary.
Copyright
Copyright strictly reserved. The text, graphics and layout of this guide are protected by Australian copyright law and the
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© Australian Institute of Company Directors August 2021
For more information, please contact:
Australian Institute of Company Directors
t: 1300 739 119
e: contact@aicd.com.au
aicd.com.au/cgia

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