With COP26 drawing to a close and a worldwide focus on reducing carbon impact, businesses committing to a net zero target will be applying their collective minds as to how to achieve this. The risks of failing to address climate change, the opportunities a decarbonisation strategy may present and the likelihood of increased climate change reporting obligations being imposed on companies mean boards cannot avoid the issue.
Companies' ESG strategy and plans for the transition to net zero will be subject to scrutiny from stakeholders with a range of interests, including investors and potential investors as well as employees, consumers/customers and possibly climate change activists. It will need to be robust and transparent to stand up to this scrutiny.
Good governance of companies will be essential in guiding the transition to net zero and boards will need help with the shift towards decarbonisation and the focus on their net zero journey. The Chancery Lane Project ("TCLP"), a collaborative legal project involving lawyers from over 200 organisations with expertise across a range of sectors and industries - see Martin Sloan's article - will be an useful resource for companies.
Lila's Board Paper
TCLP has produced a paper - Lila's board paper (all TCLP clauses and papers are given a child's name to emphasise the impact of the climate crisis on the next generation) which should help company boards create the best governance conditions for implementing climate related targets and strategy.
Lila's paper provides guidance on why it is important to take action and includes a toolkit to help embed environmental targets and values into corporate strategies. The paper also provides guidance for boards on how to monitor and evaluate their progress against the business' net zero objectives and targets.
Decarbonisation journey explained
For businesses at the early stage of their climate change strategy, Annex A of Lila's paper could be a really helpful resource, explaining why net zero needs to be considered and providing links to key resources on climate change. The complexities of net zero and emissions are covered in simple terms, making it possible for those of us who aren't experts in climate change science to understand basic net zero concepts.
Checklist of actions
Annex B of Lila's paper sets out a comprehensive checklist of actions for management to develop a climate change strategy, including:
- Assessing and managing the likely impact of climate change on the business, now and in the future;
- Setting short and medium term emissions targets and a base year against which those targets will be measured;
- Developing a strategy to remove residual emissions; and
- Implementing and communicating company climate change strategy internally and externally.
Why use Lila's paper?
Post-COP26 and with ESG likely to remain firmly at the top of the business and financial agenda for some time, directors faced with designing a credible corporate strategy on the journey to net zero could find Lila's paper a helpful starting point for board discussions. As investors, lenders and other stakeholders become more focused on ESG standards, including climate change plans, a strategy designed using Lila's paper would stand up to scrutiny and should enable management to defend themselves, if necessary, from claims that the company was not embedding emission reductions into its strategy.
As the TCLP board paper itself says "Climate-related risk is a material financial and legal risk issue for organisations. Robust and proactive management of climate-related risks is not only necessary and prudent but presents an opportunity for value capture and market leadership."
Further information on TCLP
To find out more about the work of TCLP and the climate change drafting tools available free of charge, get in touch or visit The Chancery Lane Project website.
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