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What is the Chapter Zero: Directors’ Climate Journey?
A framework developed by Chapter Zero for its members to help increase climate change awareness and embed responses that facilitate good climate governance.
Why take part?
Business resilience requires consideration of climate change. The Chapter Zero Directors’ Climate Journey aims to help non-executive directors (“NEDs”) take the conversation into the boardroom and debate responses to the climate challenge.
Who should take the Chapter Zero: Directors’ Climate Journey?
All non-executive directors committed to good climate governance and risk management. Especially board chairs wanting to shape the board agenda on climate change, chairs of audit or risk committees leading the governance of climate change risk and reporting, remuneration chairs incentivising behaviour, and NEDs wishing to understand the key business risks and opportunities for value creation.
The risk to asset values and access to capital is starting to be understood and boards are increasingly recognising the need to assess the financial risk resulting from the physical impacts of climate change and to develop strategies for both adaptation to protect their business models, and risks and opportunities arising from climate change mitigation, including from Government policies to achieve net zero emissions by 2050.
All sectors will be impacted as the transition away from carbon-intensive business models and products, as well as capital reallocation to lower carbon alternatives. This will lead to a fundamental reshaping of finance and huge opportunity.
Listen to Chapter Zero Board member Susan Hooper discussing the Directors’ Climate Journey and how to use it to engage in the climate debate at board level.
The journey maps out a path for non-executive directors to increase their understanding of climate change and the boardroom. It aims to support NEDs to have high quality and effective boardroom discussions and debate the impacts of climate change on their businesses.
The journey framework aims to help NEDs to:
- Articulate the long-term scale of the challenge for their business of net zero by 2050
- Recognise the requirements on directors to ensure consideration of key climate risks under s172 of the Companies Act 2006
- Understand the wider stakeholder group, and their ambitions: customers, employees, providers of capital (both financial institutions and investors). Ensuring the appropriate executive director ownership, stakeholder engagement and communication takes place
- Adopt the WEF Principles of Climate Change Governance; have developed a strategy which is being integrated into the business model and ensure they are embedded in board and sub-committee discussions
- Ask the right questions of the CFO, CEO and COO to ensure the board has the papers it needs for effective discussion, challenge and oversight
- Know the landscape of specialist advisers
- Prepare for reporting in line with the Taskforce for Climate-related Financial Disclosure
- Participate in the climate debate and remain up-to-date on the policy and regulatory environment, and innovation
We have designed events and curated online content which will help you to stay up-to-date on the climate topic. The framework has been designed for non-executive directors at various stages of their personal climate journey and some stages may not be appropriate for all users.
Here are a few questions you may want to ask your board
- Does the Board understand the risks and opportunities to the business with respect to climate change?
- How does the company identify climate-related risks and opportunities, both from a physical and transition risk perspective, that are material to the business?
- Are climate change risks incorporated into the company’s enterprise risk management activities?
- Has management undertaken any form of scenario analysis to evaluate climate risk across different time horizons as informed by leading market initiatives (such as IPCC)?
- Has the Board developed a climate change strategy, supported by objectives and targets? Does it have an implementation plan?
- Does the company understand what types of disclosures its stakeholders (including institutional shareholders) seek, and how the company and the board respond?
- How does the company collect data that supports high-quality disclosure against its plan, strategy, objectives and targets? What processes and controls are in place to address evolving climate-change risks and related disclosure aligned with TCFD recommendations? Does a Board committee regularly consider these issues?
- Does the company obtain external assurance on disclosures of climate performance?
- How does the Board oversee the ongoing management of climate related risks, and is the Board’s role in the management of that risk disclosed?
Adapted from the Harvard Law School Forum on Corporate Governance
Here are 8 steps to help you initiate and continue the conversation about business’ climate response:
View these awareness videos created by ICAEW.
Watch for context of the climate change and the challenge facing businesses (total viewing time 13 minutes):
Watch to hear more about the impact of climate change on different aspects of business such as asset values and for real life examples.
Examples of how climate considerations can be implemented as you adapt the strategy, set targets and monitor progress (total viewing time 59 minutes):
Learn about the financial implications of climate change with Sarah Breeden and the Bank of England, Larry Fink CEO of BlackRock and a report of the IIGCC.
In this step:
You will hear about the financial implications of the climate change.
You will be aware of the three scenarios that capture a range of prudent estimates for transition pathways and climate outcomes. You will be able to assess your business’ resilience in light of these macroeconomic scenarios:
• Early policy action scenario
• Late policy action scenario
• No additional policy action scenario
You will read the views of the largest asset manager in respect of the impacts of climate change on business and how it is now an integral part of the portfolio construction and risk management.
You will understand how the investors intend to encourage the transition to net zero.
Total viewing time 30 minutes:
For policy insights, view the recording of Sarah Breeden who has oversight of the Bank of England’s work enhancing the financial system’s resilience to climate change. The BOEs discussion paper on 2021 stress tests can be viewed here: The 2021 biennial exploratory scenario on the financial risks from climate change discussion paper.
Total reading time 60 minutes:
For a view of the investor’s expectation on climate change, read Larry Fink’s letter to CEOs discussing the Fundamental Reshaping of Finance. As well as the IIGCC report which sets out investor expectations that directors and auditors deliver Paris-aligned accounts. The accounts, must reflect the impact of getting to net zero emissions by 2050 for assets, liabilities, profits and losses.
Complete the Board Readiness Check in the Chapter Zero Toolkit
Our Board Readiness Check
Dip in and out of the Chapter Zero Board Toolkit and perform the Board Readiness Check.
Designed for non-executive directors, our Board Toolkit helps you ensure your businesses have the strategic plans in place to respond to climate change. The Board Toolkit includes the Board Readiness Check which is an automated assessment to help you determine how ready your board is to make progress on climate change.
Through doing this you will understand the key issues relating to climate change, be able to initiate the conversation at board level tailored to your business and can then identify the actions needed to start addressing the risks and opportunities.
The self-assessment will:
- Help the Board recognise the need for action and specify an intended high-level direction of travel
- Provide a platform from which to initiate/direct the in-depth scenario analysis and planning that will be needed to identify and implement specific improvements
- Help the Board with its considerations around the development of the strategy, setting objectives and targets and implementation plan.
Read the World Economic Forum’s guiding principles and questions
Learn about principles for creating governance structures that demonstrate to investors, regulators and other stakeholders how the company is integrating a strategic approach to addressing climate-change risks and opportunities (total reading time 30 minutes):
How to Set Up Effective Climate Governance on Corporate Boards: Guiding principles and questions
This paper proposes tools that can be useful for the board of directors on climate risks and opportunities. The Climate Governance Principles are designed to increase directors’ climate awareness, embed climate issues into board structures and processes, and improve the navigation of the risks and opportunities that climate change poses to business.
Learn about the potential physical risks your business could face and the financial reporting implications of climate change to share with your executive team.
These resources bring together s172 of the Companies Act 2006 and the Non-Financial Reporting Directive:
- Financial Reporting Council expectations
- Taskforce on Climate-related Financial Disclosures recommendations
- Types of climate change risk
- Governance, risk management and strategy
- Metrics and targets
- Impact on the financial statements
- Impact on narrative reporting
- Where to find examples of good disclosures
- Climate Change FAQs.
Total reading time 60 minutes:
Questions to assist non-executive director oversight of physical climate risk management
Explore the potential impacts of physical risks from climate change and the questions NEDs can ask to build in resilience.
Total reading time 30 minutes:
A closer look at climate change
This Deloitte publication provides an overview of investor and regulatory focus, and explores a framework for companies to use in responding to climate-related matters, including the areas in the financial statements and narrative reporting that might be affected.
Understand TCFD, the objective of reporting and how it applies to your business
This section will provide recommendations for disclosures that will allow you to gain greater insight into the climate-related risks and opportunities, and deliver consistent, comparable, and reliable corporate disclosure to inform decision making.
Deep dive into the implementation guidance for Task Force for Climate-related Disclosures (“TCFD”) and the whitepaper discussing a general framework for companies to demonstrate their long‑term sustainability (total reading time 60 minutes):
- Full Disclosure: A high level guide to TCFD alignment.
- Carbon Disclosure Standards Board and Sustainability Accounting Standards Board released a TCFD Implementation Guide
- Toward Common Metrics and Consistent Reporting of Sustainable Value Creation
- Financial Reporting Council – Climate-related corporate reporting – where to next?
Have you finished the first seven steps? We’d like your feedback.
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