Bushfires in Australia have put focus on the impact of climate change. Photo / Getty Images
Bushfires in Australia have put focus on the impact of climate change. Photo / Getty Images
Directors are being warned to have a climate action plan or risk looming legal consequences.
The Institute of Directors says responding to climate-related issues should be boards' top priority this year to ensure the long-term sustainability of their organisations.
The institute's chief executive Kirsten Patterson said legal opinionin this country and overseas highlight the need for directors to consider climate issues.
She said boards had a critical role to play in responding to climate-related issues to ensure the long-term sustainability of their organisations.
In the institute's sentiment survey last year just 35 per cent of boards said they were engaged and proactive on climate change.
Kirsten Patterson, chief executive of the Institute of Directors. Photo / File
About half the institute's 9500 directors are in the non-profit sector and while the figure was up from 29 per cent the year before, Patterson said she was surprised at how low it was.
''That percentage needs to be much higher. The impacts and risks – such as business disruption, physical and financial risks – of doing nothing as a board are becoming clearer. I hope we wouldn't have to experience something as horrific as the wildfires across the Ditch before we take action.''
She said boards were encouraged to:
• Understand the potential impact that climate change can have on an organisation and identify key risks and opportunities
• Consider early adoption and disclose material climate-related risks, opportunities and strategic decisions to all stakeholders.
• Assess skills and experience to ensure the board is (or develop it to be) climate competent.
Boards were under increased pressure from investors to focus on sustainability.
The NZ Super Fund had already said it was getting out of carbon heavy investments and last week the world's biggest money manager, BlackRock, said it would begin to get out of investments in coal production and introduce funds that ban fossil fuel stocks.
The $10 trillion, which has investments in New Zealand, will also vote against corporate managers it assesses aren't making progress on fighting climate change.
A note by Simpson Grierson last year said there were no clear directions on exactly how climate change risks feature in a director's duties.
''Direction will have to wait until legislative amendment is made or a case on the issue goes through the courts – which could take years.''
Simpson Grierson said what was certain was the duty of a director to consider, and manage, risks that are relevant to the company.
''It is this requirement that lies at the heart of a director's duty to the company and to shareholders. Consideration of climate change risks will certainly become a relevant factor for all companies either directly or indirectly in the foreseeable future.''
Moves are underway to change laws to require companies to assess and report their climate-related financial risks.
Submissions are being taken on the Government's Climate Action Plan which minister for Climate Change James Shaw says will ensure that companies understand and disclose how climate change will impact both their business and investments.
The discussion document sets out a proposed mandatory regime, the purpose of which is to ensure that material risks and opportunities are routinely considered in business and investment decisions.
The bushfires in Australia have put the spotlight on climate change. Photo / Getty Images
Patterson said the proposal was getting ''reasonably broad support'' among the governance community and a number of organisations had already moved to reporting in this area voluntarily.
The other key risk for directors this year was management of data and privacy, she said.
While more than a third of New Zealand businesses had been subject to a cyberattack in the past year, according to Aura's Cyber Security Market Research Report, only 50 per cent of boards reported discussing cyber risk in the sentiment survey.
"It is critical that boards receive comprehensive reporting from management about cyber risks and incidents, and actions taken to address them," she said.
Privacy laws were also in for an overhaul with a comply or explain regime likely.
"That greater transparency should focus the mind."
The institute had last year suffered a data breach and had disclosed it publicly, she said.
