Jessica Regnard, Corporate Governance Consultant
Organisations across all sectors and demographics are contending with a series of holistic change management challenges in the context of climate transition planning but what are we seeing locally?
At Aspida we have found the following three core operating principles, can help set the foundations:
- Articulate a clear strategic business case for climate. This involves a risk-reward strategy which integrates the organisation’s plans about how it will benefit from climate for its clients and its own operations. The strategy is reflected congruently and consequentially in the organisation’s business KPIs, and its operating and internal control environment.
- Mark the direction of travel firmly. Set out SMART goals and simultaneously allow for a shifting strategy iteratively and utilise horizon scanning both internally and externally across all business sectors and climate.
- Display deliberate and proactive thought, people, and execution leadership. This entails cross-participation in decision making by business and risk, with a governance structure that accommodates this. It also calls for short and medium-term investments in product and process-innovation.
Proposed governance interventions across the three lines of defence:
First line of defence – the business.
The board and senior management team at Aspida Group have invested in a sub-executive ESG and climate committee where business, risk, finance and operations jointly develop the organisation’s risk appetite statement, commitments and short to medium-term group and divisional plans and targets to intertwine with the overarching business strategy. From this they can create and cascade KPIs, roll out comprehensive policies, frameworks and processes (including an internal carbon price and offsetting where relevant). This also cascades a cognitively diverse governance structure, which has a sense of ownership and accountability at every level.
A central sustainability and climate function should ideally be a centre of excellence supporting executive governance in a localised fashion but with a commercial mindset. Integrating itself in each business division via climate and business subject matter.
At the same time, the central sustainability and climate function should lend itself as a learning and feedback centre, processing external intelligence, and gearing up the organisation for the future.
Second line of defence – risk and compliance.
Climate becomes fully integrated into the organisation’s risk and compliance frameworks, thus creating a unified internal control environment. A climate-adjusted risk culture should permeate throughout the organisation. Compliance, far from box-ticking as we all know, works proactively with business to save money from organisational conflicts and regulatory breaches. The chief risk officer in turn can help balance risk and opportunity within the organisation.
Third line of defence – the internal audit function.
The internal audit function allows for a considerable auditable territory for climate, comparable to that of the financial domain. Importantly running open enquiries forming the beginning of engagement with executive management and commanding a high priority in committee agendas. The key to climate transition success is the tone and sponsorship at the top. A genuine commitment to navigating and monitoring is a key enabler for climate transition success.
To this effect, I think we can see local ‘best practice’ moving toward a place where the Board create and disclose climate competencies and have a deeper systematic engagement with the executive teams and business strategy.
Organisations can also learn from other successful practices that we have seen locally such as instituting a junior Board.
Board performance is an equally strong success indicator. Setting annual Board aspirations and evaluations, and designating specific areas of focus for each director can raise the bar on Board performance for climate transition.
Governance is not an all-encompassing solution to climate transition. Rather, governance can be better seen as the armour of organisational intentionality.