Despite growing concern from institutional investors about the risks associated with climate change and the subsequent impact on companies in their portfolios, companies in Canada’s most carbon-intensive sectors are not demonstrating “climate competency” in the boardroom, according to a new report.
The Shareholder Association for Research and Education’s report looked at disclosures from 52 companies in Canada’s energy and utilities sectors according to three aspects: board skills and experience, oversight and risk disclosure. While it did find that more companies are starting to talk about climate change in their reporting, only three boards disclosed any member expertise on the issue, and no board included climate change knowledge in its board competency matrix.
“Boards of directors have to think about a very different future as we transition to a lower-carbon economy,” said Laura Gosset, SHARE’s engagement analyst who co-authored the report. “Investors need boards to demonstrate that they are “climate-competent” – that they understand and prioritize climate change risks to long-term value, including the physical, legal, reputational, stranded asset and regulatory risks related to climate change.”
SHARE is seeing a growing number of institutional investors voicing their concern on climate change, both in a Canadian context and globally, says Gosset. “This is evident in the increasing number of shareholder resolutions filed and an increasing number of investors’ engagements with companies and policy-makers on climate-related issues.”
For example, to support Alberta’s commitment to update and strengthen its climate policy, SHARE co-authored a letter to the Alberta government in 2015 that was signed by global investment institutions with almost $5 trillion in assets under management, notes Gosset. And last year, the association engaged with more than 25 Canadian companies on behalf of Canadian investors concerned with the climate-related risks and opportunities that these companies might be facing.
Climate change issues are linked with areas of business like corporate strategy, risk assessment, capital expenditures, operations, trade, financial performance and asset valuation, according to the report, which notes that how a company manages climate risks and opportunities now will impact its success in the long term.
The report is based on information gathered through publicly available sources. However, SHARE noted in its release that it intends to approach the companies in its report on behalf of its institutional shareholder clients to prioritize climate change competency in board development and risk assessment processes.
Better disclosure from these companies is key as well, says Gosset. “This could include improved and more targeted disclosure on climate-related skills and experience, assigned oversight and the risks and opportunities that the company is facing. At the moment there is very little disclosure in these areas which makes it very difficult for investors to understand the current level of climate competency.”