The Role of Boards in Climate Change Leadership
Climate change and biodiversity loss are no longer peripheral environmental issues. They are material governance issues affecting organisational strategy, risk, capital allocation, reputation, resilience and long-term value. Boards therefore have a central role in Climate Change Leadership (CCL). That role extends beyond compliance and disclosure. Effective climate governance requires boards to understand the organisation’s climate and nature dependencies and impacts, establish credible targets, oversee transition pathways, challenge management assumptions and ensure that environmental commitments are supported by evidence, resources and action. The board’s role is not to manage the transition itself. It is to set direction, establish accountability, test the credibility of management’s plans and monitor whether the organisation is actually moving towards its stated climate and nature objectives.
1. Meet the organisation’s climate reporting and emissions obligations
Australian directors now operate within an increasingly formal climate reporting and emissions environment. Boards need to understand how AASB S2 climate-related disclosures, the National Greenhouse and Energy Reporting (NGER) scheme and, where applicable, the Safeguard Mechanism affect their organisation. These mechanisms have different purposes and scopes, but collectively increase expectations for robust emissions measurement, governance, disclosure and accountability.
AASB S2 is particularly important because climate-related financial disclosure brings climate into mainstream governance. Board oversight should encompass climate-related risks and opportunities, strategy, risk management, metrics and targets, including the quality of underlying data, assumptions, controls and forward-looking statements.
Boards should:
- know which climate reporting and emissions regimes apply to the organisation
- establish clear responsibilities between the board, board committees and management
- ensure reliable Scope 1, Scope 2 and, where material, Scope 3 emissions information
- challenge material assumptions, estimates and forward-looking claims
- ensure disclosures are supported by appropriate controls, verification and assurance
- integrate climate reporting with financial, strategic and risk governance rather than treating it as a separate sustainability exercise
2. Govern nature as well as carbon
Climate governance is increasingly inseparable from nature governance. Organisations depend on, and affect, ecosystems, water, land, biodiversity and ecosystem services. Boards therefore need to understand not only greenhouse gas emissions but also material nature-related dependencies, impacts, risks and opportunities. The Taskforce on Nature-related Financial Disclosures (TNFD) provides a useful governance architecture. Its recommended disclosures are structured around Governance, Strategy, Risk and Impact Management, and Metrics and Targets. The LEAP approach, Locate, Evaluate, Assess and Prepare, provides a practical process for identifying priority locations, dependencies, impacts, risks and opportunities and preparing an organisational response.
Nature considerations should be incorporated into mainstream strategy and decision-making rather than treated as a separate conservation initiative. This direction is also consistent with the Kunming-Montreal Global Biodiversity Framework and its expectations concerning assessment, disclosure and reduction of nature-related impacts and risks.
From framework to emerging governance practice
TNFD adoption is moving nature-related disclosure from framework development into organisational practice. The TNFD Adopters list identifies organisations that have committed to begin making disclosures aligned with the TNFD Recommendations in their corporate reporting. The list is updated monthly and includes commitments for reporting years from 2024 onwards (TNFD, 2026). This growing adoption is significant for boards because it signals that nature-related dependencies, impacts, risks and opportunities are increasingly entering mainstream governance, strategy and reporting. Australian adopters already span sectors including finance, infrastructure, technology, consumer products and other corporate activities. Adoption should not, however, be interpreted as evidence that an organisation is already nature positive. It is a commitment to TNFD-aligned disclosure. Boards should therefore consider whether their organisations have the governance capability, data, systems and management processes required to assess material interactions with nature before such expectations become a compliance exercise. Early use of TNFD and LEAP can also improve strategic decisions about risk, capital allocation, value chains and the transition towards nature-positive outcomes.
Boards should:
- identify where operations and value chains materially interact with nature
- understand material dependencies on ecosystem services as well as organisational impacts on nature
- integrate nature-related risks and opportunities into strategy and enterprise risk management
- establish appropriate nature-related metrics and targets
- monitor emerging nature-related disclosure expectations and capability requirements
3. Set credible carbon targets
Carbon targets are not merely reporting devices. Properly designed, they are governance mechanisms that translate climate ambition into organisational priorities, resource allocation and accountability. Dahlmann, et al (2019) show that the credibility of corporate carbon targets depends not simply on whether a target exists, but on absolute (not intensity ) targets, ambition of the target and long-term goals. Boards should therefore bring significant ambition to their net-zero aspirations whilst also understanding the emissions baseline, the level of ambition, the pathway required to achieve the target and the organisational commitments that sit behind it.
Boards should ensure that carbon targets:
- are based on a reliable and sufficiently comprehensive emissions baseline
- are time-bound, transparent and appropriately ambitious
- include meaningful near-term milestones as well as longer-term commitments
- address material Scope 1, Scope 2 and Scope 3 emissions
- are embedded in organisational strategy, investment and capital allocation
- have clear executive ownership and accountability
- are supported by credible implementation plans and regularly monitored
4. Turn targets into credible transition plans
Setting a target is only the beginning. Boards should require management to demonstrate how the organisation will achieve it. The Transition Plan Taskforce (TPT) provides a particularly useful bridge between target setting and organisational action. Its framework is built around three principles: Ambition, Action and Accountability. The TPT translates these principles into five connected elements: Foundations, Implementation Strategy, Engagement Strategy, Metrics & Targets, and Governance. A credible transition plan should therefore connect the organisation’s strategic ambition with changes to operations, products and services, value-chain engagement, financial planning, measurable targets and board-level accountability.
A board should be able to answer:
- Ambition: What transition is the organisation seeking to achieve, and is it sufficiently ambitious?
- Action: What operational, technological, commercial and behavioural changes will deliver it?
- Resources: What capital, capabilities and management attention are required?
- Dependencies: What assumptions, technologies, policies or external conditions does the plan depend upon?
- Accountability: Who is responsible, what milestones will be monitored and how will underperformance be addressed?
A transition plan should cover short, medium and long-term action and should be integrated with the organisation’s overall strategy and financial planning. Climate strategy should not sit alongside business strategy as a parallel sustainability activity. The transition should increasingly shape the organisation’s business model, investment choices, products, services and value chain.
5. Prioritise genuine decarbonisation
A credible pathway should show how emissions will fall over time and identify the operational, technological and commercial changes required to deliver those reductions. Boards should test whether the pathway prioritises direct abatement, contains credible interim milestones and addresses material value-chain emissions.
The board should challenge whether the pathway:
- prioritises genuine emissions reduction rather than offsetting solutions
- identifies the principal decarbonisation levers available to the organisation
- aligns capital expenditure and investment decisions with the stated transition
- addresses potential carbon lock-in from long-lived assets or strategic decisions
- incorporates material Scope 3 emissions and supplier or customer dependencies where relevant
- identifies uncertainties and alternative pathways if key assumptions fail
- provides measurable milestones against which the board can monitor progress
6. Use carbon credits and offsets responsibly
Carbon credits may have a legitimate role in transition strategies, but they should not substitute for an inadequate decarbonisation pathway. A sound governance principle is to prioritise direct emissions reduction and use credible carbon credits transparently where residual emissions cannot yet reasonably be eliminated.
The TPT strengthens board accountability in this area by requiring organisations to explain why carbon credits are being used, the extent to which the transition plan relies on them, the quantity and type of credits, the standards or methodologies used and the factors relevant to their credibility and integrity. It also distinguishes nature-based and technological removals and reduction versus removal credits.
Boards should ask:
- What proportion of the target is achieved through direct decarbonisation and what proportion through credits?
- Which emissions are considered residual, and why can they not currently be abated?
- What evidence supports the additionality, permanence, measurement and integrity of the credits?
- What reversal, leakage or over-crediting risks exist?
- Does the credit create material impacts or dependencies for communities, ecosystems or biodiversity?
- Are public claims transparent about the distinction between emissions reduction and compensation?
The governance question is therefore not whether offsets are inherently acceptable or unacceptable. It is whether their use is scientifically credible, proportionate, transparent and subordinate to a genuine decarbonisation strategy.
7. Connect climate and nature targets
Boards should avoid assuming that a carbon-positive outcome is necessarily a nature-positive outcome. A project may sequester carbon while producing weak biodiversity outcomes, and an emissions strategy can overlook significant impacts or dependencies on ecosystems. Climate and nature governance should therefore be integrated but not conflated. Boards should ensure that climate targets and transition plans are tested for their implications for nature, while nature-related strategies have their own appropriate metrics and targets. The objective is a coherent transition that reduces emissions while protecting and, where possible, restoring the ecological systems on which the organisation and society depend.
Beyond compliance: governance as Climate Change Leadership
Compliance is necessary, but it is not sufficient. An organisation can comply with reporting requirements while continuing along an environmentally unsustainable trajectory. CCL therefore asks boards to consider not only whether disclosures are accurate, but whether the underlying decisions are contributing to meaningful climate and ecological outcomes.
This requires:
- Ecological reflexivity: understanding how organisational decisions affect, and are affected by, ecological systems.
- Double materiality: considering both how climate and nature affect the organisation and how the organisation affects climate and nature.
- Systems thinking: recognising interdependencies, feedback loops, delayed consequences and value-chain effects.
- Ethical judgement: considering stakeholders, communities, future generations and the biosphere alongside immediate financial outcomes.
- Strong sustainability: recognising that critical ecological systems and natural capital cannot simply be replaced by financial or manufactured capital.