Climate Change: Five Considerations for Boards: Directors need to take environmental volatility seriously.

• Author: Angele, Susan M.
• Position: ON THE GOVERNANCE AGENDA

Climate change is no longer abstract. Phenomena including raging wildfires in Australia and increasingly frequent "100-year" storms have proved that the impact on supply chains is real, and the potential long-term scenarios range from concerning to apocalyptic.

Environment-related risks ranked as five of the top 10 risks in terms of likelihood in The Global Risks Report 2020, published by the World Economic Forum. The report ranked climate-action failure No. 1 in terms of impact --higher than weapons of mass destruction.

As Black Rock CEO Larry Fink wrote in his 2020 letter to CEOs, compared with prior crises that were relatively short term, including the 2008 global financial crisis, "Climate change is different. Even if only a fraction of the projected impacts is realized, this is a much more structural, long-term crisis." As stewards of long-term value, boards of all companies should have the topic on their radars, including the following five considerations.

1. Assess the company's resilience in the face of increasingly disrupted supply chains. Has the company's network of suppliers of small but important components been assessed for the risk of disruption due to severe storms, floods or fire? What about alternatives for work to get done when roads are impassable and workers are focused on managing risks to their homes and families (an issue that is being addressed as I write)? These issues would likely factor into enterprise risk management and crisis scenario planning in the context of a single severe event impacting the core of the company's business. However, given the increased frequency of these issues globally, the likelihood of a number of smaller events collectively causing a material impact is increasingly plausible and should be incorporated into risk assessments and planning.

2. Include the company's energy supply chain in scenario planning. During my recent fireside chat at the Women Corporate Directors 2020 Americas Institute with David Crane--an investor, former energy company CEO and leading voice on climate change--he stressed the importance of assessing the company's energy supply chain from a risk perspective. In addition to other reasons a company might use solar energy, Crane said the investment should be valued from a business continuity perspective, as access to solar power could help mitigate business disruption from electrical grid failure in the aftermath of a severe storm, wildfire, etc.

3. Recognize that while...