Director and Board Oversight of Net Zero Transition Plans
Director and Board Oversight of Net Zero Transition Plans
By Shelia Courtney and Dr Rory Sullivan
High-quality transition plans enable companies to develop, communicate and implement their climate strategies. A transition plan can focus attention on key business risks and opportunities, highlight issues that should be to escalated to the board, and catalyse fundamental changes in business strategy.
In November 2023, Chapter Zero, supported by Chronos Sustainability, the Centre for Climate Engagement and the London Stock Exchange Group Foundation, launched its Transition Planning Toolkit.
The Toolkit is designed to support non-executive directors (NEDs) and boards in overseeing the development and implementation of net zero transition plans. It includes:
· A Briefing Note that explores transition planning within the context of the climate reporting landscape and analyses the key role of NEDs in transition planning.
· A Scorecard that allows NEDs to assess how effectively their board is responding and contributing to a transition to a low-greenhouse gas emissions, climate-resilient economy.
· A Governance Compass that can be used in board committee meetings – Nomination, Audit, Remuneration, Sustainability– to ensure that the work of these committees considers, aligns with and supports the company’s strategic ambition and transition plan.
Chronos’ View
Boards hold the ultimate responsibility for ensuring the long-term success of a company. As such, they must anticipate future changes and challenges and take appropriate action – establish the company’ vision, mission and values, set strategy, define management’s responsibilities - to ensure the company has the necessary resources to address these changes and challenges.
In that frame of reference, climate change is clearly one of the major challenges that must be addressed by boards. Transition plans provide a structure for boards to assess the significance of climate change for their business and to decide on the actions that need to be taken. For most if not all companies, the low carbon transition will inevitably have profound implications for their strategies and their capital and operational spending. It is therefore essential that board members proactively, constructively. confidently and consistently communicate with investors about the transition plan, explaining how the plan will create value for investors over the short and long-term, and how the plan enables the company to manage risk and seize opportunities.
The reality is that transition planning is a relatively new activity for most companies. The Chapter Zero Transition Planning Toolkit will help boards ensure that their senior management teams have the right competencies, knowledge and expertise to effectively design, develop and deliver the transition plan. The Toolkit will also equip boards to challenge quality and credibility of these transition plans.
Notes:
1. The Chapter Zero Transition Planning Toolkit can be accessed at: https://chapterzero.org.uk/implement-the-transition/transition-planning-foundations/transition-planning-toolkit-briefing/
2. The Toolkit was produced by Chronos Sustainability with contributions from the Centre for Climate Engagement and from Chapter Zero and its members. The Toolkit was sponsored by the London Stock Exchange Group (LSEG) and the LSEG Foundation.
3. For more information about Chapter Zero, see https://chapterzero.org.uk/