It was Groundhog Day this week. This North American and German tradition is used by many as the harbinger of spring, to see if better weather prospects are on their way, depending on whether or not Punxsutawney Phil goes back into their burrow after seeing their shadow.
However, this tradition, like many other more major weather patterns, is under serious threat due to climate change. The potential impact of this on people, communities, companies and the world at large is vast. There are some spring shoots of recovery, such as the Inflation Reduction Act in the USA, but there is so much more to do.
To understand all these environmental, social and governance (ESG) risks and opportunities, and to take appropriate action, education is key. We offer best-in-class
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1. European finance sector counts the cost of climate change. The European Central Bank (ECB) and central banks in the Eurozone have published a preliminary set of indicators that examine the potential impact of climate change in Europe. The potential bill is steep: €6 trillion for physical risk caused by water, with a further €5 trillion for damage caused by wildfires. The indicators contribute to the ECB’s overall climate action plan, which incorporates climate change impacts into an overall monetary policy framework. These new indicators cover sustainable finance, financed emissions and how physical climate risks impact loan and security portfolios
2. Legal jeopardy ahead. With regulations and disclosure requirements starting to stack up around the world, company lawyers are preparing for a surge of ESG-related litigation in the coming year. According to the 2023 Annual Litigation Trends Survey from Norton Rose Fulbright, just under a third (28%) of those surveyed already found their ESG dispute exposure rose in 2022, with a further 24% expecting that to get worse this year. Overall, ESG is now officially a class-action area of future concern, alongside cybersecurity, data protection, employment and labour disputes. “Many people think of climate change and the energy industry when they think of ESG. But the physical and transition risks of climate change are not limited to one industry, and stakeholders are pushing for more information on a variety of other ESG topics, like waste management, DEI efforts and risk management practices,” said Norton Rose Fulbright disputes partner Rachel Roosth in the report.
3. Future boardrooms in 2023. With American board directors burdened like never before, Deloitte has released its agenda of key topics to consider for the coming year, including:
- Board composition and skills: Companies are adreading the net, looking for board members that have experience in areas where they have the greatest needs, such as cybersecurity or technology knowledge
- Technology and cyber risk: Even without SEC requirements, investors will likely expect boards to face cybersecurity risks and disclose how boards do so.
- Strategy and risk: With so many new risk factors in play for companies, such as inflation, geopolitical confrontations, climate and biodiversity change and supply-chain breakdowns, boards and audit committees should reevaluate their enterprise risk programs.
- Workplace and workforce matters: Three years after the SEC adopted new disclosure requirements relating to human capital resources three years ago, it is likely more disclosure requirements are coming this year.
- Climate change: All eyes are on the SEC’s climate disclosure regulations, due by the end of April.
- Company role in society: Off the board agenda until very recently, stakeholders now expect boards to take a stand on many societal issues, and have a policy that explains how and they take positions.
4. CEOs look to the future. Companies are facing the prospect of an oncoming global recession and, as the latest EY CEO Outlook Pulse discloses, CEOs are making brave strategic decisions to keep making progress. Building ESG and sustainability as a core aspect of all their company’s products and services is seen as the number one priority in the next six months. Moreover, just over a third (39%) identified sustainability and societal issues as one of the top two areas to invest in following an economic downturn. CEOs also see critical advantages in how ESG can strengthen their company’s brand as well as build trust with key stakeholders such as communities, customers and employees. EY surveyed 1,200 CEOs around the world for the report.
5. US states pay the price. While the anti-ESG debate rages on in America, a new Sunrise Project study has revealed that the bill for the disagreement is being picked up by the taxpayers in the affected states. According to the research, the total cost in seven US states that have proposed or passed legislation restricting them from doing business with companies that have embedded ESG could hit $US708 million. All these bills are derived from templates created by the American Legislative Exchange Council, a conservative nonprofit organization that specializes in draft bills for state legislatures. The study is based on Wharton School of Business research into anti-ESG law in Texas, which linked it to $532 million in higher interest payments on municipal bonds. Researchers then extrapolated the findings across six other states.
Correction: In last week’s edition, we stated that philanthropic financing for climate projects in 2021 totalled an estimated US$810 billion. The true figure that went towards reducing carbon emissions is less than 2% of that total.
Mathew Loup is Competent Boards’ Director, Marketing & Communications. Follow Competent Boards on LinkedIn.Back To News & Views