Vanguard’s new commentary on its approach to climate risk governance reaffirms its commitment to focusing on company-specific material risks (climate or otherwise) that have the potential to undermine long-term shareholder value. For those companies confronted with material climate-related risks, the piece outlines Vanguard’s expectations for boards in relation to overall board competence, risk oversight and mitigation, and disclosure oversight.
Notably, as with cybersecurity oversight, Vanguard does not expect or even necessarily support the notion of climate-expert directors to achieve the requisite oversight competency; rather, board competency may be attained by other relevant experience (e.g., change management), board diversity (in its broadest sense, including experiences and backgrounds), and ongoing director education.
Risk oversight and mitigation may be effectively demonstrated by express allocation of responsibilities among the board/committees, goal- and target-setting, director access to external (as well as internal) and varied sources for information, and analytical tools (such as climate scenario analysis).
Disclosure should address how the board oversees the company’s material climate risks and related strategies; relevant quantitative disclosure (e.g., performance against company-established targets / goals); and qualitative disclosure about governance and risk management processes. Vanguard supports the TCFD and SASB frameworks for those companies seeking to improve their climate-related disclosure.
The commentary also includes these illustrative board climate oversight engagement questions: