Climate Disclosure and the Role of the Board

By Lloyd Yates and Katherine J. Brennan


Climate Risk Disclosure Online Article

As the risks from environmental, social, and governance (ESG) issues such as climate change become more apparent, the role of corporate boards in overseeing these risks—and how they are disclosed to stakeholders—is evolving. Climate-related risks dominated long-term risks in terms of both likelihood and severity in the World Economic Forum’s Global Risks Report 2020.

A number of voluntary ESG reporting frameworks have emerged to meet new disclosure needs. If properly implemented, these frameworks can serve as a tool for directors to evaluate a company’s climate-related risk management procedures and disclosures. 

Climate-Related Disclosure Frameworks

The rules established by the US Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB), and the stock exchanges provide a well-established framework for the board’s oversight of financial statement disclosures. Climate-risk disclosure, however, is a rapidly evolving concept with no one right way to evaluate a company’s disclosure practices. This lack of standardization is a challenge for companies attempting to make decisions about what constitutes useful disclosures and for boards overseeing and monitoring these disclosures.

There are numerous, voluntary, climate-risk reporting frameworks. Most recently, in January 2020, the World Economic Forum released a Consultation Draft of proposed common ESG metrics for companies to consider using, including in investor communications. However, the most popular reporting frameworks today include those from the Global Reporting InitiativeCarbon Disclosure ProjectClimate Disclosure Standards Board, the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD), and Sustainability Accounting Standards Board. Work is underway to harmonize these approaches and align climate-risk disclosure with the recommendations of the TCFD, which seeks to “develop recommendations for voluntary climate-related financial disclosures that are consistent, comparable, reliable, clear, and efficient, and provide decision-useful information to lenders, insurers, and investors.” As of September 2020, support for the TCFD has grown to include more than 1,440 organizations, representing a market capitalization of over $12.6 trillion.    

To date, however, the SEC has not adopted mandatory, climate-related information in securities law disclosures. Indeed, ESG disclosures were conspicuous by their absence in the recently adopted amendments to Regulation S-K, despite strong demand from investors and disagreement among the Commissioners on this omission. The issue is expected to return when the Commission considers rules to amend Item 303 of the Regulation. While disclosure remains voluntary in the near term, boards should begin to think about their role in overseeing these disclosures.

Governance of Climate-Related Disclosure

A board’s responsibility for overseeing climate disclosure should be delegated within the board’s existing structure and approach to overall climate risk. At one end of the spectrum, aspects of climate-risk governance may be the responsibility of a few committees—for example, the risk committee becomes responsible for oversight of climate-risk management and the compensation committee is responsible for tying executive compensation to performance against corporate climate goals. In this case, the audit committee might be charged with overseeing climate-related disclosures as an extension of its financial reporting responsibilities. At the other end of the spectrum is a centralized model, where the board nominates a dedicated sustainability, ESG, or climate-change committee that might assume primary responsibility for all aspects of climate-related risk and disclosures.

In practice, the approach most boards take sits somewhere along this spectrum. Although it may make sense for the audit committee or sustainability committee to assume primary responsibility for overseeing disclosure, different disclosure elements are likely to touch on the remits of other committees, making it necessary to coordinate on matters of mutual interest (see Figure 1, below).

The Marsh & McLennan board has formally focused on key aspects of the company’s ESG initiatives since 2008, when it created a corporate responsibility committee. Renamed the ESG committee in 2020, the committee oversees and supports the company’s commitment to social, environmental, and other public-policy initiatives, including climate risk. In order to maintain transparency and consistency with respect to all ESG matters, the ESG Committee comprises members of each of the board’s other committees. While the company’s audit committee is responsible for overseeing the integrity of the company’s financial statements and the company’s enterprise risk management programs and processes, the ESG committee has primary responsibility for all aspects of climate-related risk and disclosures.  

Marsh & McLennan signed on to TCFD in May 2020 and expects to publish its first integrated ESG report, including climate disclosures pursuant to the TCFD framework, in 2021. The report will include a TCFD disclosures index, which will map the company against relevant peers, enabling the ESG committee to benchmark the company’s disclosure and performance in a standardized framework.


While the SEC, PCAOB, New York Stock Exchange, and Nasdaq have yet to establish a framework for the board’s oversight of climate-related disclosures, directors in most states still have a duty of oversight that requires them to implement and oversee the operation of “any reporting or information system or controls” designed to inform them of material risks. Without a robust reporting framework subject to effective oversight, the risks of litigation and bad publicity in relation to ESG disclosures are greater, and are likely to grow as investor scrutiny of ESG disclosures increases.

Evaluating Management’s Approach

A framework can provide a tool for boards to benchmark management’s approach to the identification, assessment, management, and disclosure of material climate-related risks in a manner analogous to the way in which some boards have used the National Institute of Standards and Technology’s Framework for Improving Critical Infrastructure Cybersecurity as a basis for evaluating their management’s approaches to cybersecurity. Although the TCFD framework is focused on disclosure, it still identifies the key components of climate-risk governance that boards could use to develop a simple diagnostic tool to evaluate the maturity of existing management approaches (see below). The results could inform a road map for management to follow.

The following is a climate-risk governance diagnostic framework derived from TCFD (source: Marsh & McLennan).


  • How often are the board and/or relevant board committees informed about climate-related issues?
  • Does the board and/or board committees consider climate-related issues when
    • reviewing strategy, risk management, and business plans;
    • monitoring implementation and performance of plans and initiatives; and
    • overseeing major capital expenditures, mergers, acquisitions, and disposals?
  • Have senior managers or management committees been assigned climate-related responsibilities and, if so, do these report to the board?


  • Is there a methodology and process for identifying climate-related risks and opportunities over relevant short-, medium-, and long-term horizons and across different business lines and geographies?
  • Is management able to quantify the financial impacts of climate-related risks and opportunities?
  • Does analysis of climate-related risks and opportunities feed into financial planning and strategy development?

Risk Management

  • Are there robust processes in place to identify and assess climate-related risks?
  • Are there robust climate-risk management frameworks that can justify decisions to mitigate, transfer, accept, or actively manage risks?
  • Is climate-risk management properly integrated into the wider Enterprise Risk Management processes?

Metrics and Targets

  • Are there appropriate metrics in place to measure climate-related risks, e.g. for water and energy use or exposure to physical impacts? Has trend analysis been performed on these?
  • Has the company established targets for climate-related revenues?
  • Is management incentivized to achieve relevant targets and goals?

This is the third blog in a five-part series. Check back next week for more insights from MMC on board oversight of climate change.

Lloyd Yates
Lloyd Yates is chair of the Marsh & McLennan ESG committee.

Katherine J. Brennan
Katherine J. Brennan is deputy general counsel, corporate secretary, and chief compliance officer at Marsh & McLennan.