United States:
Ceres Guidance For Engaging On Climate Risk Governance And Voting On Directors
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Ceres, a nonprofit organization focused on solving climate and
sustainability challenges through coordinated action by capital
market leaders, recently issued its 2022 Guidance for Engaging on
Climate Risk Governance and Voting on Directors (guidance). The
guidance provides information on corporate governance practices and
lobbying as well as disclosure of climate-change related risks and
opportunities, noting that this information is valuable to
investors and proxy adviser firms preparing for upcoming annual
shareholder meetings and shareholder engagement. In addition, the
guidance promotes compliance with the recommendations made by the
Task Force on Climate-related Financial Disclosures (TCFD). This
Alert provides a brief overview of the guidance.
TOP 10 GUIDANCE BASED ON TCFD “GOVERNANCE”
RECOMMENDED DISCLOSURES AND THE NET-ZERO COMPANY BENCHMARK AS WELL
AS CLIMATE ACTION 100+ NET ZERO COMPANY BENCHMARK INDICATORS
The guidance notes the following with respect to disclosures and
benchmarking around climate risks and opportunities:
- Companies should publicly disclose, in a committee charter or
in the corporate governance guidelines, the company’s oversight
of climate-related risks and opportunities and efforts by the
company to reduce greenhouse gas emissions. - Companies should establish and maintain a committee dedicated
to managing the company’s climate-related risks. This committee
should be comprised of members from various company departments
such as audit, human resources, research and development, risk
management, and more. - Companies should disclose, in their proxy statement or
corporate social responsibility report, how each director’s
experience or expertise allows them to contribute to the
company’s ongoing discussions on climate risks and
opportunities. - Companies should respond to votes by a majority of the
shareholders that address climate-related proposals and director
nominations. - Companies should disclose their actions related to
climate-change controversies or incidents. - Companies should nominate at least one independent director to
connect with significant shareholders on climate change risks and
opportunities. - Companies should include in their scope of work by the
company’s financial team and independent auditors the review
and analysis of climate-related risks and their impact on the
financial statements. - Companies should implement a transition plan targeted at
reducing greenhouse gas emissions and reaching other
climate-related goals. - Companies should align their policies and practices with
climate lobbying activities consistent with the Paris
Agreement. - Companies should include the disclosures recommended by the
TCFD.
HOW INVESTORS AND PROXY ADVISORY FIRMS MAY HOLD BOARDS
ACCOUNTABLE FOR INADEQUATE CLIMATE-RELATED RISK GOVERNANCE
The guidance highlighted the point that investors and proxy
advisory firms dissatisfied with an organizations action on
climate-related risks and opportunities may withhold, and are
withholding, support from directors and chairs of committees such
as the audit committee, nominating and governance committee and
public affairs committee.
HOW COMPANIES SHOULD CONSIDER AND IMPLEMENT GUIDANCE
According to Cynthia McHale, Ceres senior director, “Strong
climate governance is particularly critical given the urgent,
systemic and non-diversifiable risks that the crisis poses to the
economy and to investor’s portfolios, as well as the
significant threat it poses for individual companies.” The
guidance informs investors and proxy adviser firms of the
climate-related corporate actions recommended for companies. As a
result, we recommend companies consider the guidance as they
address climate-related risks and opportunities through corporate
governance and disclosures.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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