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The United States and other G7 nations need to continue considering the adoption of a global framework that requires companies to disclose their climate risks.
However, making disclosures mandatory worldwide is difficult when there are two corporate governance systems in place around the world, according to Paul Griffin, professor at the University of California Davis Graduate School of Management and the lead author of the article published in Nature Energy.
Griffin stated in the article that "most fundamentally, due to the borderless nature carbon emissions and financial capital, any mandatory climate risk discourse framework must also be global to prove effective."
Amy Myers Jaffe, Climate Policy Lab, Tufts University, co-authored the article "Challenges to a climate risk disclosure mandat".
There are two basic systems
For example, U.S. shareholders have strong shareholder rights and require high levels of disclosure from firms. Others economies, like the European Union and Asia, operate in a blockholder model, in which blockholders exercise governance by direct intervention in a company's operations. Griffin stated that there is no single model of corporate governance that has widespread acceptance.
Researchers suggest that extreme weather events in recent summers around the globe have created an urgency to create a net zero global economy. Large asset owners and asset managers have tried to get energy companies to comply with the global climate goals. Investors are demanding climate-friendly stocks that can be used for governance, environmental, and social purposes. President Biden issued an executive order requiring firms to disclose climate risks; Congress has also passed legislation to do so.
Griffin stated that regulators should collaborate at a global level to create a hybrid model that addresses climate risks and climate risk disclosure. This will strengthen shareholder rights to press climate disclosure but also align with the long-term perspective of a blockholder structure.
He stated that rapid convergence of governance systems into a global hybrid model was essential given the urgent need to transition to net zero business principles and to keep global temperatures at 1.5 degrees Celsius higher than pre-industrial levels.
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More information: Paul Griffin and colleagues, Challenges for climate risk disclosure mandate, Nature Energy (2021). Information from Nature Energy Paul Griffin and colleagues, Challenges for climate risk disclosure mandate (2021). DOI: 10.1038/s41560-021-00929-z
