Environmental Disclosures: Considerations for Board Members – Corporate / Commercial Law
United States: Environmental disclosures: considerations for board members
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For key stakeholders, environmental and climate factors present operational challenges and opportunities and are increasingly a focal point for regulators, investors and consumers. These groups have paid increased attention to boards of directors and their fiduciary duty to assess company operations and shape business strategy in the ESG context. Indeed, new rules and disclosure requirements from bodies such as the SEC are expected in the coming months, especially those related to climate change considerations. As businesses wait for these impending changes, it’s imperative that boards begin to take stock of current practices and prepare for further scrutiny and additional disclosures. The following considerations are intended to guide boards of directors and any relevant sub-committees when evaluating environmental exposure to risk and prepare for increased disclosure regulations.
Checking the temperature:
- Evaluate what the company has done, if any, through climate risk assessment and disclosure. This can be accomplished by engaging inter-organizational groups including management, employees and customers.
- Take note of what peers and competitors are doing in this space to inform the board’s approach and strategy. Many companies are now relying on or referring to the frameworks proposed by the Climate-Related Financial Reporting Working Group and the Sustainable Development Accounting Standards Board to develop their own approach.
- Collaborate with key stakeholders, including employees, and assess the most important risks and challenges for these groups
Define a reference:
- Taking into account the relevant risks, expose the significant short and long-term risks to the business. Use it to organize progress tracking to measure progress between anticipated challenges and concrete goals.
- Encourage the appointment of a person or committee to take a position on these issues.
- Align the metrics you plan to report externally with those used by company management and agree on the format and frequency with which you plan to report.
- Inform management and management teams about ESG objectives and how they relate to the board’s assessment of executive performance.
- Request regular reports from management or leadership teams to the board and relevant sub-committees on progress and address issues as they arise.
- Add ESG as a regular agenda item for board meetings to discuss progress, new challenges, director training, etc.
- Check with an outside legal advisor to ensure you stay on top of the latest trends in climate change disclosure and regulatory changes that could affect business operations and long-term goals.
- Taking into account the guidelines and / or regulations of the relevant governing bodies, prepare to report on the existing risks management progress has taken to mitigate the exposure and any market opportunities identified. Consider new expected SEC guidance on environmental disclosures.
- It is increasingly important for stakeholders and potential investors that this information goes beyond standard language to discuss specific material risks and qualitative solutions.
- Be prepared to describe the role of the board in overseeing environmental risks and related initiatives.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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