Vanguard’s approach to climate risk governance


Here’s a 4-pager from Vanguard’s stewardship team on climate risk governance. Here’s an excerpt:

Although we are not prescriptive regarding how a board oversees and mitigates any given material risk and do not believe in “one size fits all” approaches, it may be helpful for boards to consider certain practices:

• Assign clear responsibilities. Where climate risks are material, board-level responsibility for climate risks can be assigned to the full board or to relevant board committees. These committees can serve to closely oversee material climate risks and make recommendations about climate-related matters; when appropriate, the committee can share key matters with the full board. Clearly disclosing the board’s overall process for overseeing material climate risks is beneficial for shareholders.

• Set and disclose goals. The board can set or approve clear climate-related goals related to the company’s comprehensive strategic and financial planning. The goals set forth in the Paris Agreement are used as benchmarks by countries and companies aiming to address climate change. It is also helpful for investors to understand whether and how companies and their boards are planning for resiliency in the face of various climate scenarios. Where climate change is a material risk, we encourage companies to establish and disclose to investors the metrics and goals used in the company’s strategy for mitigating the risk and to clearly disclose progress against that strategy over time.

• Seek the best information. Engaged boards often get information from diverse sources, both internal and external. We believe that directors should have unfettered access to internal specialists and the authority to access relevant external subject matter experts.

• Harness analytics. Analytical tools such as scenario or sensitivity analyses can support rigor and mitigate bias in an oversight process.