Sharan Gill, writer, lawyer and CSj contributor, reviews a new report published by the Corporate Secretaries International Association and PwC looking at the role of the company secretary in integrating climate initiatives into organisations’ governance structures.
When it comes to climate change and its impact on organisations, is the company secretary an influencer or implementer? This question was the focus of a report recently released in a joint collaboration between the Corporate Secretaries International Association (CSIA) and PwC.
At a time when climate change has been dominating the news, with sobering predictions about the potential costs for the global economy, and as stakeholders increasingly expect effective climate action from companies, this report could not have come at a more opportune time. There has been a lot of discussion about the disruptive and destructive relationship between climate change and business; it is refreshing and timely to explore the role of the company secretary in driving effective change that integrates climate initiatives into organisations’ governance structures.
Addressing climate change from a governance perspective
The CSIA/PwC report – Climate Change and the Corporate Secretary, Influencer or Implementer? (the Report) – is based on a survey which involved some 584 participants from 21 countries (the Survey). Though at least half of the respondents were company secretaries, participants with various other professional roles within whose purview climate change would be relevant, were also represented. The primary objective of the survey was to investigate how organisations were addressing climate change from a governance perspective, and particularly the impact of this on the role of a company secretary.
Key areas such as overall awareness of climate change, allocation of responsibilities within an organisation on climate change issues, the training received by the company secretary and the board on climate change, the extent of reporting and risk management processes were just some of the issues explored. The views of the survey participants throw into sharp focus the role played by the company secretary, not just with regards to climate change, but within the organisation’s general governance structure. Though some of the findings were not unexpected, there were a few surprises, the reasons for which the paper explores.
At the outset it is encouraging to note that more than half of the respondents report that their respective organisations have positive future plans to address climate change. When probed as to the details of implementation, however, there was far less clarity. The foreword to the Report makes the blunt observation that organisations with specific target areas for implementing climate change were represented by less than half of the respondents. The question then naturally arises whether company secretaries are able to influence governance practices, and not just with climate change issues, by moving from a purely advisory role to a more strategic one.
Governance structures and the board
As global pressure for action on climate change increases, it has become imperative for boards to integrate this key issue into their oversight responsibilities. Nevertheless, one of the striking findings of the survey was that, while nearly three-quarters of respondents indicated that climate change impacts have had a negative impact on their business revenue, and 93% of respondents felt that these negative events impacted the industry as a whole, this does not appear to have translated into raising the priority of addressing this issue at the board level.
The survey seems to indicate that while boards do prioritise mitigating negative ESG impacts, somewhat curiously business resilience and sustainability, including adapting to climate change, are not accorded the same priority. The majority of respondents indicated that climate change issues are not prioritised as a separate agenda item on the board or management committee agendas, while a significant minority (17%) also confirmed that there were no formal processes in place to communicate climate change risk.
It is somewhat reassuring that, of the boards that have included climate change as a separate agenda item, nearly half have a committee dedicated to climate change issues. The rest have integrated climate change and sustainability issues into other existing governance structures. Boards appear to be grappling with a ‘complex, new phenomenon, and practical guidance may be required to help board directors understand their role in addressing these risks and opportunities’, the Report says.
Could the direction be steered by the company secretary? In respect of climate change, the Survey would seem to indicate that it is the company secretary who appears to be most often tasked with this role, closely followed by the chairman, the chief executive officer, and the chief risk officer. This would suggest that the company secretary’s role may indeed be evolving from an advisory to a more leading role on certain key issues.
The Report recognises that, while initiatives such as the Paris Agreement to the United Nations Framework Convention on Climate Change (implemented in 2015) have provided momentum for action to be taken on climate change, organisations face the dilemma of ensuring financial sustainability and achieving profit targets while satisfying community demands for social responsibility and environmental protection. However, 75% of respondents to the Survey cited a decrease in revenue as a result of disruption caused by climate change. The Report points out that this demonstrates that addressing climate change through governance processes is not only about social responsibility or protecting the environment – it is also critical to business sustainability.
The Survey presents an overview of the action taken by regulatory authorities regarding climate change within different jurisdictions, with the establishment of regulatory authorities at the forefront, followed closely by initiatives to promote climate risk awareness and enforcing compliance with regulations. It is interesting to note that more than half the Survey respondents were not aware of this. The Report highlights the inherent irony in this, pointing out that organisations are less likely to adhere to regulations if they are not even aware of them.
Of the respondents who were aware of the regulations, the Report points out that a ‘proactive and visible role being played by the regulatory authorities has been key to organisations’ awareness of the applicable regulations’. The question arises whether organisations should do more to stay abreast of regulatory requirements. This would seem an excellent opportunity for the company secretary to step up and show the way.
Transparency in reporting
The Sustainable Development Goals (SDGs) put forward by the United Nations are broad in scope and, as the Report puts it, they leave many wondering where to start. Nevertheless, organisations’ responses to achieving the SDGs can shape their long-term strategy, support dialogue with stakeholders and help to maintain or secure their licence to operate.
Reporting, both internal and external, will receive heightened scrutiny as stakeholders expect relevant information regarding climate change. Respondents were asked to indicate whether risks, opportunities and specific events linked to climate change are formally reported on, and the frequency of these reports. It is encouraging to note that more than half (55%) confirmed that climate-driven events are formally reported on, at least once or more times in a year. However, less than a third indicated that they followed recognised voluntary climate change reporting frameworks, such as the Carbon Disclosure Project (CDP), or the Task Force on Climate-related Financial Disclosure (TCFD). At a time when large asset managers and stakeholders are demanding greater transparency with regards climate change issues, this appears to be an area where the company secretary could be a catalyst for change.
Enhancing the role of the company secretary
Addressing climate change is a governance issue and the Survey found that, although more than half the respondents confirmed that the board was reliant on the company secretary, at least 20% indicated that they played no role in climate change initiatives within their respective organisations. Moreover, the Survey found that ‘only 15% of corporate secretary respondents regard their role as being strategic, driving initiatives or policy direction or ensuring that climate change is on the board’s agenda, despite their role in guiding the board in considering risks and opportunities’.
The Report attempts to explore the reasons for this. Several reasons, such as the company secretary being underutilised or having a limited platform with little access to the board, reflect wider governance issues. However, when the participants themselves were asked whether they believed they had sufficient knowledge about climate change to effectively guide the board, the responses were evenly divided. Participants were, however, universal in their desire to educate themselves and were taking steps in that direction. Those who did believe they had sufficient knowledge identified various specific actions, including attending workshops and keeping updated to raise awareness of climate change issues.
The Report makes it clear however that there is a gap in knowledge regarding how to effectively integrate the risks and opportunities into organisations’ strategic plans. It emphasises that there is a need to expand training and professional development programmes for company secretaries. As a participant to the Survey succinctly puts it, ‘The role of corporate secretaries needs to be strengthened further to give them the power to be heard, otherwise they merely remain compliance professionals’, the Report says.
The way forward
In the midst of the discussions surrounding climate change, the Report points out that what is often missing from the conversation is that in order to ensure sustainability and accountability, these processes need to be formalised, both in terms of organisational strategy and reporting. The reality is that climate change awareness needs to be well integrated within governance structures. It is not enough to just make boards aware of the need to prioritise climate change issues, they also need to be equipped with the right tools to make the best possible decisions. The Report suggests that the company secretary is ideally placed to create an enabling environment for climate change governance. However, the Report also makes it clear that company secretaries need to correspondingly shoulder the responsibility to equip themselves with the knowledge required to steer organisations in the right direction. It is encouraging that the Survey has demonstrated that learning by experience can be shared across brands and member associations. To that end, the Report has started the ball rolling in the right direction.
Sharan Gill is a writer and lawyer based in Hong Kong.
SIDEBAR: Key takeaways for the company secretary
- As boards appear to be reliant on the company secretary to drive better climate change governance, the role of the company secretary should move beyond being purely advisory to offer strategic direction on certain issues.
- Ensure that the board understands its role with regard to climate change and prioritises it as a separate board agenda item.
- Establish mechanisms to ensure awareness of climate change impacts, both at board and managerial levels.
- Define and implement a suitable reporting framework to measure sustainability impacts from and on business operations.
- Ensure the board agenda includes relevant discussion of material sustainability issues and that board responsibility statements include climate change responsibilities.
- Advise the board to ensure that sufficient resources are available to implement climate change initiatives.
- Promote transparency by considering disclosures covering risk governance and management, and the company’s external impacts and resources.
- Act as a conduit between the board and stakeholders on issues relating to the UN Sustainable Development Goals to facilitate identifying risks and opportunities for long-term strategy.
- Implement a formalised approach to comply with climate change regulation; updating the board on regulatory requirements as well as facilitating its access to available resources.