A Guide to Setting Up Climate Risk Governance
As a director-level professional building climate governance at your company for the first time, you’re likely grappling with the foundational question: how do we set up effective governance for sustainability and climate risk? Governance is the backbone of any ESG (Environmental, Social, and Governance) program. It ensures accountability, aligns efforts across the organization, and builds credibility with stakeholders. And its emphasized in climate risk reporting, as the first two questions in a TCFD report are:
Describe the board’s oversight of climate related risks and opportunities.
Describe management’s role in assessing and managing climate-related risks and opportunities.
This guide will walk you through the key elements of sustainability governance—from board oversight to management structures––so you can build a useful climate risk program and publish a climate risk report you’re proud of.
1. Establishing Board Oversight
The board’s role is to provide strategic guidance and ensure accountability for the company’s sustainability efforts. Here’s how to structure board-level governance:
Which Committee Oversees Sustainability?
Many companies task the Audit Committee or Nominating and Governance Committee with ESG oversight, as climate and sustainability are often viewed through the lens of risk management.
Alternatively, some companies create a standalone ESG or Sustainability Committee. This approach works well if sustainability is central to your company’s strategy.
How Often Should They Meet?
Committees with ESG responsibilities should meet quarterly if climate risks are material to the business. This cadence aligns with most board reporting cycles and allows for timely updates on progress and risks. If climate risks are deemed less material to the business, semi-annual or annual oversight can be sufficient.
What Do They Discuss?
Key agenda items might include:
Updates on ESG strategy and progress against goals
Assessment of climate risks and opportunities, including alignment with frameworks like TCFD (Task Force on Climate-related Financial Disclosures)
Review of major disclosures, such as sustainability reports or SEC climate filings
Integration of sustainability into business strategy, investments, and risk management
Updates on regulatory compliance
Updates on material impacts from natural disasters in the last period, or expected impacts in the coming period
Example Conversation:
Facilitator: The Chair of the Audit Committee, who has ESG oversight.
Scenario: The Chief Sustainability Officer presents a quarterly update on the company’s progress complying with SB 261 regulation. The board discusses an unexpected rise in energy use at a key data center.
Outcome: The committee requests the CSO and COO to develop a plan for energy efficiency upgrades and report back at the next meeting, along with an analysis of potential cost savings.
2. Creating an ESG Steering Committee
At the management level, an ESG Steering Committee coordinates efforts across departments and drives execution. This group bridges the gap between strategy and action.
What is an ESG Steering Committee?
This is a cross-functional group of senior leaders tasked with driving the company’s ESG agenda. They ensure alignment, track progress, and resolve challenges.
Who Should Be on It?
Members should represent key functions impacted by or driving ESG initiatives. Typical roles include:
Chief Sustainability Officer (or equivalent)
Chief Financial Officer (CFO)
General Counsel or Chief Legal Officer
Head of Investor Relations
Chief Risk Officer
Chief Operating Officer (COO)
Leaders from HR, Product, and Operations teams
How Often Should They Meet?
Monthly meetings are ideal in the early stages to build momentum and maintain focus. Once processes are well-established, consider shifting meetings to a quarterly cadence with a monthly update via email.
What Do They Discuss?
The ESG Steering Committee should:
Review progress on sustainability goals and metrics
Align on climate-related risks, opportunities, and disclosures
Address emerging regulations and stakeholder expectations
Ensure cross-functional coordination on ESG initiatives
Approve key deliverables, such as climate risk analyses and annual ESG reports
Evaluate integration of ESG considerations into corporate strategy and operations
Example Conversation:
Facilitator: The Director of ESG.
Scenario: During a monthly meeting, the committee reviews progress on a new supplier code of conduct. The Legal team shares feedback on compliance challenges identified during supplier audits. The human resources team shares the impact of a recent natural disaster on employees.
Outcome: The committee agrees on a phased rollout plan, starting with high-risk suppliers, and tasks the Procurement and Legal teams with developing a training program for suppliers on compliance expectations. The human resources team makes a plan to direct resources to help employees recover from the disaster.
3. Building a Reporting Cadence
Consistency in reporting is essential for maintaining momentum and accountability:
Monthly Updates: For the ESG Steering Committee to track progress and resolve roadblocks.
Quarterly Reports: To the board committee overseeing ESG, summarizing key updates, risks, and accomplishments.
Annual Review: A comprehensive look at progress, including alignment with frameworks like TCFD and preparation of the company’s sustainability report.
4. Key Takeaways
Effective sustainability governance integrates board oversight with management-level execution. The board ensures strategic alignment and accountability, while the ESG Steering Committee drives day-to-day progress. By establishing clear structures, meeting cadences, and responsibilities, your company can build a robust foundation for sustainability and climate risk management.
Starting from scratch can feel daunting, but with the right governance structures in place, you’ll be well-positioned to meet stakeholder expectations and drive meaningful impact.