Disclosing bank and emitter governance around climate-related risks and opportunities.
TCFD Guidance on Governance
In eight (out of 15) companies assessed, the board is responsible for overseeing climate risks, indicating accountability for climate-related risks at the most senior level of the company. In two companies, management level appointees or committees oversee climate risks.
At the remaining five companies, it is unclear who is responsible for overseeing, assessing, and managing climate-related risk making it difficult to hold responsible persons to account.
At four (out of 15) companies, good long-term corporate behaviour is incentivised by incorporating climate-related performance metrics into the board’s remuneration policies.
Details of who is responsible for monitoring risks and how they monitor those risks can determine whether adequate attention is being given to the issues. By disclosing this information in public reports, the responsible individuals may be held accountable for their management of climate-related risks.
Who has oversight of climate-related risks and opportunities?
Recommended Disclosures (a) and (b)
The TCFD recommends that organisations disclose:
- The board’s oversight of climate-related risks and opportunities
- Management’s role in assessing and managing climate-related risks and opportunities.
The board and management should play an important role in overseeing, assessing and managing climate-related risks.
Eight out of fifteen companies explicitly mention that the board is responsible for overseeing climate risk. If they said the board is responsible for broader “sustainability”, “environmental issues”, or “ESG”, that is not sufficient. Two companies indicated that Climate-related issues are managed by management-level appointees or committees, while responsibility for climate risks was not clearly disclosed by five companies.
Anglo American’s description of its board processes for overseeing climate change touches on all the key areas under the TCFD’s guidance including how the board monitors and oversees progress against goals and targets for addressing climate-related issues.
Extract from Anglo American’s Climate change: Our plans, policies, and progress report, 2016:
“Matters relating to climate change and energy are included in each quarterly report to the committee, and also feature periodically as stand-alone items on the agenda. Matters discussed by the Committee in 2016 are disclosed on page 18 of the 2016 Anglo American Sustainability Report. The Chari of the Sustainability Committee provides a summary of the Committee’s discussions at the Board, which addresses the most material issues raised by the Committee. The CEO performance scorecard and reports to the Board also include performance indicators on energy and GHG emissions.
In addition to the discussions at the Sustainability Committee, the Audit Committee reviews the company’s material risks, including climate change, twice a year. The Remuneration Committee takes into account financial as well as sustainability indicators in its decision-making process.”
Ensuring that senior executives are incentivised to behave appropriately with respect to climate change is a key governance issue. Incorporating climate-related performance indicators into executive remuneration should assist in holding management to account by aligning incentives with long-term strategy.
Does the remuneration policy include performance metrics used to measure and manage climate-related risks?
Recommended Disclosure (a), under Metrics and Targets*
The TCFD recommends that the key metrics used to measure and manage climate-related risks are disclosed and, where climate-related issues are material, whether and how these performance metrics are incorporated into remuneration policies is described.
Only four out of the fifteen companies considered in this report have a remuneration policy that includes performance metrics relating to emissions reduction. This is despite the fact that the majority of companies report offering incentives for the management of climate-related issues in their CDP disclosures.
Climate-related performance metrics might include energy or emission reduction targets. These targets and metrics are usually provided in the Annual or Integrated Report, but CDP disclosures also provide additional information
* This disclosure is covered under the Core Element ‘Metrics and Targets’ in the TCFD Recommendations. It has been analysed under ‘Governance’ for the purposes of the Full Disclosure 5 report.
Eni’s Path to Decarbonisation report provides a clear description of how related performance metrics are incorporated into remuneration policies.
“The CEO’s Short-Term Incentive Plan (STI) includes objectives associated with climate strategy that are consistent with the guidelines defined in the Strategic Plan. Under the Short-Term Incentive Plan, a portion of the bonus matured is deferred over a three-year period, subject to further performance conditions, in order to assess sustainability over the medium term. In particular, 25% of the STI is composed by environmental sustainability and human capital objective, half of this refers to reducing the GHG emissions intensity rate of operated hydrocarbon production, in line with the 2025 target announced to the market. This objective is also assigned to top management and managers with responsibilities associated with the emissions reduction.