Company directors at the top end of town don’t know which way to turn with climate reporting.
They know they need to invest in the climate transition, but they’re pulled in different directions by stakeholders and often don’t know whether to speed up or slow down.
What’s missing is clarity.
These key highlights are from a recent report from a climate governance study undertaken by the Australian Institute of Company Directors (AICD) in collaboration with advisory and investment firm Pollination, Climate Governance Study 2024: Moving from vision to action.
The report, which surveyed 1057 company directors including qualitative studies with ASX 200 companies, revealed that the majority of companies were “somewhat or well prepared” for the federal government’s climate reporting regime, but nearly half of not for profits said they were not prepared.
Chief executive and managing director of AICD, Mark Rigotti, said
“While directors acknowledge the need for substantial investment in climate transitions, they are often pulled in different directions by stakeholders. Particularly for listed companies, navigating different investor expectations and complex new regulation is a key challenge.
“Directors are increasingly wary of what they commit to publicly, given the legal risks, uncertainty around emerging technologies and the fluid policy environment.”
Pollination Managing Director Zoe Whitton said: “Directors are responding fast to new policy and regulatory scrutiny, but there’s a widely held view that these asks aren’t presently adding up. In aggregate directors aren’t sure whether to move faster or slower, and they’re not getting the clarity they need to decisively invest, collaborate and pursue new strategies.
Key findings according to the report:
1. Australian directors are prioritising climate governance
- 80 per cent of Australian directors are concerned about climate risk
- 70 per cent of these directors also indicated having opportunities to address it
- 60 per cent of directions believes boards should pay more attention to climate – an increase from 46 per cent in 2021
- 50 per cent of directors see nature and biodiversity as a material risk to their organisation
2. moving from climate ambition to execution is a growing challenge
- only 23 per cent of the listed directors surveyed are on boards with climate targets and transition plans
- boards embedding climate change in risk management framework has deceased by 11 per cent, despite an increase in reporting
- this is likely due to directors’ focus shifting from frameworks to execution
3. stakeholders are pulling in different directions
- 24 per cent of all directors and 35 per cent of listed directors indicated challenges with short term financial demand from investors
- demands remain mixed, with some prioritising immediate return while other emphasis sustainable long term growth
4. policy and regulation act as both a driver and drag on transition plans
- lack of clear and settled climate change policy has affected 42 per cent of directors
- a third of not for profit directors and a quarter of government directors said they had challenges with time and resource constraints
- 72 per cent of directors who must do “mandatory reporting” are feeling “well” or “somewhat” prepared for the new laws
- directors are calling on government to stick to realistic climate goals to reduce greenwashing, heightened regulatory scrutiny and lack of assurance – they are instead calling for a balanced and coordinated market approach
5. board approaches to climate change continue to evolve
- 58 per cent of directors sit on boards without a sustainability committee
- directors who feel confident in their board’s climate governance competency has fallen from 63 per cent to 51 per cent amongst listed directors
The political and scientific context is changing rapidly
- the country’s political landscape has shifted since its inaugural report
- while the previous government committed to net zero, it was the new government that legislated Climate Change Act 2022 – there is an increase in ambition
- the rise of climate change, high inflation, high financing costs, high commodity prices and extreme weather event has become a significant driver of climate action in corporation