Climate Governance Forum 2023 highlights

The 2023 Climate Governance Forum held in Sydney on 11 August gave more than 2000 in-person and online people who registered insights from experts on the climate-related issues impacting boards. Here, we recap the session highlights with the key takeaways for readers. Upcoming issues of Company Director magazine will give further analysis of the topics discussed and the AICD will release its Mandatory Climate Disclosures guide in September.

Australia is one of the world’s largest emitters per capita in the world, according to Mike Cannon-Brookes, co-CEO and co-founder of Atlassian and an advocate of green energy.

“The past eight years were the hottest on record,” said Cannon-Brookes. “That means more floods, more bushfires, huge economic costs and, eventually, human cost. We have one of the highest risks as a country — and that applies to all of the economy and all the companies you’re associated with.”

Cannon-Brookes also spelled out what he sees as unprecedented opportunities.

“Decarbonisation means that, over the next 10 to 20 years, we will change the technology of every source of heat, light and motion to being electrified. This is a huge economic opportunity because we’ve got the three ingredients that every country is looking for. First there are the physical resources, including rocks in the ground like silver, nickel, copper and lithium that happen to be really valuable for this transition, as well as sun and wind. Second, we have the fifth-largest capital pool in the world and a very sophisticated financial system. Third, we have a huge talent base and a highly educated workforce. As a country, we have the ultimate opportunity to be bigger than the world’s 20th-largest economy [goods exporter] and we should be embracing it.”

He urged directors to take action before they’re forced to. “When changes are forced, they’re usually far more expensive,” he said.

How to prepare for mandatory climate reporting

The government released its proposed mandatory climate reporting position in June this year. “These disclosures are complex and will require far more granular detail than current reports,” said panel moderator Christian Gergis GAICD, Head of Policy at the AICD.

“Scrutiny from investors, stakeholders, regulators and ASIC make this a high enforcement priority, and rightly so. ASIC chair Joe Longo has referred to this as the biggest corporate reporting change in a generation.”

New Zealand’s mandatory climate-related disclosure (CRD) regime is already in force, with the first disclosures due this financial year. “Directors are having to get up to speed very, very fast,” said Julia Hoare, chair of the Port of Tauranga. “[Australian directors] need to have a really good, detailed and robust discussion about their objectives and how they can incorporate risks and opportunities into strategy and planning.”

Sourcing data is one of the most significant challenges, particularly for scope 3, or indirect, greenhouse gas emissions. “The more reliable and accurate the data you can get, the better processes and controls you’ll have around that information,” said Joanne Gorton MAICD, managing partner Audit and Assurance at Deloitte.

“You may need to make changes in some of your contractual arrangements with customers and suppliers to acquire the information you need.”

“This level of reporting can’t be delegated to the climate team,” said David Thodey AO FAICD, chair of Xero. “It’s really important that the board actively engages with management and that you make sure you have people who are accountable. Remember that reporting is actually about the action you’re taking, so you’d better make sure you’re taking action.”

Transition planning: The path to net zero

Moderator Zoe Whitton, MD and Head of Impact at Pollination Group, said her one-line takeaway from the conference was that “climate targets are business targets”. Cate Harris, group head of Sustainability at Lendlease, pointed out that signing up for a target is just the beginning. “It’s ongoing in terms of keeping a watching brief on what’s emerging and trying to advocate for new and emerging technologies or design techniques or other solutions as they come to the fore,” she said.

As a first step, Ewen Crouch AM FAICD, a director at BlueScope and chair of Corporate Travel Management, recommends clarifying accountabilities within the board and the executive team. “Make someone responsible, then give them particular milestones that can be monitored into the future. Without that, people can just go around in circles,” he said.

“If you’re going to make progress, you’ve got to have a plan and you’ve got to have a strategy,” said Dr Kerry Schott AO, a director at energy company AGL and chair of the Carbon Market Institute (CMI). “The ‘doing’ of it is much harder. You’ve got to balance affordability with your emissions reduction and, with an electricity company, reliability is critical. The other critical thing is to recognise we’re in a huge change in the economy — and a huge disruption. You need to review your plan and strategy regularly.”

While sustainability can be part of a competitive advantage, Harris sees a need for collaboration. “This can’t all be solved by one organisation,” she said. “Look at what other leaders are doing in your sector and beyond. We’re out there being transparent and sharing, so take advantage of that.”

The risks of greenwashing

Greenwashing has become a key concern for boardrooms across Australia. Stakeholders expect companies to make climate change and sustainability statements that are credible, evidence-based, and transparent.

Alinta Energy director Kathleen Bailey-Lord FAICD said it’s important to establish what is “aspirational” and what is “actual” and think through your risk appetite on managing that. “It is very much an enterprise risk. Identify and manage the risk with knowledge and ask for verification, as you would on any financial disclosure,” said Bailey-Lord. Tim Stutt, partner and Australian lead for ESG at Herbert Smith Freehills said there is uncertainty around what might be seen as greenwashing and a real nervousness about statements already out there in brochures or on an organisation’s website. “If you think it is concerning, you either need to update it, qualify it or remove it. I think that's different to green hushing in the sense of not saying something… if companies are holding back from saying it, that's where the concern arises.”

Organisations are being asked to substantiate something which is a “multi-decade transition with all of the interdependencies”. “Actually, it is really quite difficult,” said Stutt.

ASIC deputy chair Sarah Court noted that “everybody recognises this is a seismic shift and that everybody is going to need assistance”.

“In terms of an enforcement or surveillance regime, we are thinking about what that might look like… It's very genuinely a work in progress and we are not ignorant or naive to the challenges that this new regime will pose for everyone in this room and for ourselves,” she said.

Evolving risk: Address from Senator Jenny McAllister

The next big climate challenge for directors is the need to respond to our evolving understanding of physical risk in what is a critical decade for action, Assistant Minister for Climate Change and Energy Jenny McAllister told the forum.

“Good climate governance is a shifting target in a complex and changing economic and environmental landscape,” she said.

More complicated climate decisions are coming before boards as decision-makers analyse how climate risk manifests in supply chains, business operations and assets.

McAllister said that while many countries have a net zero plan, an S&P assessment of 10,000 companies globally found that only one in five had a plan in place to adapt to the physical risks.

In May, the federal government announced Budget funding for a National Climate Risk Assessment, which will draw together key data, which she said will be useful. “It will mean for the first time we'll have a national picture of the risks that we are going to need to address together.”

After legislating targets for net zero emissions by 2030 and 2050, and reforming the safeguard mechanism for large emitters, in July the government announced decarbonisation plans across six sectors including agriculture, the built environment, energy and electricity, industry and land, transport and resources.

McAllister, who praised the AICD’s contribution to date, said it would take shared responsibility and re-creating the institutional capability to tackle such big, complex problems. Targets will not be set and forget. “What will matter in the long run are real efforts.”

Act Now: Understanding stakeholder expectations

Brynn O'Brien GAICD, executive director of the Australasian Centre for Corporate Responsibility (ACCR) said there was a message for boards and directors as the growing use of shareholder proposals, campaigns against individual directors and divestment garnered intense discussion.

“The message for oil and gas company boards or the boards of major emitters is, it's time to start setting company strategy like your jobs depend on it, because they do,” O’Brien said.

At Woodside Energy, the ACCR put forward member statements objecting to the re-election of board members, which received a 35 per cent vote against one director. “That's really the direction that this is going to go,” she said.

Debby Blakey GAICD, CEO of industry super fund HESTA said with a 20, 30 to 40 year investment horizon for its one million members, it needed to consider shareholder proposals on their merits.

“We have a preference for resolutions that are clear about boards demonstrating their strategies, how they're managing risks, opportunities and giving us the information we need to shareholders, rather than being overly prescriptive,” she said.

On board composition, Blakey said she looked for a future mindset. “This is probably the biggest transition that any of us will ever be involved in and there is so much urgency to it. It is a board that is leaning in with capability, capacity and mindset. We like to see a board that can articulate that.

Australian Conservation Foundation CEO Kelly O'Shanassy, reminded the forum “this is actually a nature crisis as well — nature is in as much trouble as climate” and that “we shouldn’t get mesmerised by the complexity”. “We talk about how hard it is… what is harder is living on a planet with runaway climate change, it is, in fact, impossible to do.”

Biodiversity and nature: What can boards do?

Nature is not an externality. Economic interdependence on nature — the biosphere, marine ecosystems and atmosphere — and the risks associated with its degradation cannot be ignored, the final forum panel cautioned. Moderator Sarah Barker, MAICD, head of Climate and Sustainability Risk Governance at MinterEllison, told attendees that, like climate before it, directors would be ill-advised to wait for prescriptive legislation on nature, because market, investor and stakeholder expectations are running a long way ahead.

In July, MinterEllison, AICD and the Climate Governance Initiative released the Biodiversity as a material financial risk: What board directors need to know resource.

Misconceptions about nature being “free” need to be debunked, said KPMG partner Carolin Leesha, who sits on the Taskforce on Nature-related Financial Disclosures (TNFD), citing research that estimates the global value of ecosystem services to global GDP at around US$125 trillion a year.

Penny Bingham-Hall FAICD, a non-executive director of Fortescue Metals Group, said the resources company is developing biodiversity rehabilitation projects and nature-based projects on existing land assets, flagging the company is doing TNFD pilots to test how they measure biodiversity impact and put together a scientific roadmap for future projects. “In this space of nature, that's one of the things that big companies who own a lot of land can contribute to,” she said. “Actually working with experts around the methodology to get some real data and metrics around nature and biodiversity.”

For SMEs and NFPs, chair of the Indigenous Land and Sea Corporation Ian Hamm MAICD called out supply chain decisions and employee culture as important sector contributions, saying that voluntary reporting can function as a benchmark for conscience. From a First Nations perspective, Hamm emphasised balance.

“Learning from the Aboriginal perspective of how we think of our place in nature, we don't dominate it. It doesn't dominate us. We are one and the same.”

Additional reporting by Narelle Hooper, Elise Shaw, Steph D’Souza