Patrick McNamara
Senior Specialist, Net Zero Stewardship
As investors navigate a rapidly evolving landscape for climate action, strong governance remains the cornerstone of an effective corporate response. This insight explores why climate governance is central to managing financial risk and the net zero transition – and how IIGCC is actively supporting investors seeking to engage with companies more effectively on their climate governance practices.
For investors, the fundamentals haven’t changed. Climate change remains one of the highest priority topics when engaging with companies, not only due to its nearer term physical risks but also as a systemic risk affecting long-term value.
Investors wish to know who is responsible within companies for overseeing climate-related material financial risks, and that such people have sufficient competencies to ensure the development of credible strategies and decarbonisation plans to manage these risks.
In this context, many investors are focusing on climate corporate governance – the frameworks and practices a company implements to manage its climate-related material financial risks as well as the financial opportunities associated with climate change – as a key engagement topic.
This includes factors such as having a climate-competent board, regular board discussions of climate-related topics, and the comprehensive integration of climate-related material financial risks into the risk management framework.
The principle is simple: boards have a legal duty to address financially material issues and this includes climate change, which creates both material financial risks and opportunities.
To support investors in their engagements, IIGCC has established the Climate Governance Thematic Working Group. The Group provides guidance, tools, and practical support to help investors assess how companies are integrating climate into their governance frameworks to support more effective dialogue.
The state of play
2025 has been a year of further progress in efforts to mitigate the risks posed to investors’ portfolios by climate change. For the first time, the UN predicts a significant fall of around 10% over the next decade in global emissions. Renewables, meanwhile, have overtaken coal as the world's biggest source of electricity.
However, new evidence suggests that the world is approaching critical global tipping points, while policy headwinds in the US and EU pose new challenges for investors and companies.
As climate risks evolve, effective governance remains a key anchor. A 2025 study found that 49% of EU companies consider climate risk a top 10 organisational concern.
Strengthening governance for risk mitigation
Investors have long focused on corporate governance in their analysis of companies. Corporate governance factors such as board director independence, executive remuneration, and shareholder rights have remained thoroughly embedded in investment risk assessment and valuation models.
Strong corporate governance ensures clear accountability within organisations and transparency for external stakeholders, protecting investors’ rights and supporting long-term success.
Good climate governance sits within this and seeks to ensure that a company’s corporate governance framework and practices reflect and thoroughly integrate climate-related material financial risk.
A strong governance framework clearly articulating the board’s accountability and oversight of climate change risk is one of investors’ three asks of companies on the Climate Action 100+ focus list, alongside emissions reduction, and disclosure on and implementation of net zero transition plans. This underpins the CA100+ Benchmark, which assesses the performance of the highest emitting companies globally against these asks.
However, the results of the most recent CA100+ Benchmark show that only a small number of companies fulfil all the climate governance metrics, reinforcing the need for further engagement.
At the same time, investors are looking for new tools to better assess board climate competence, the effectiveness of board oversight, and executive remuneration, and other factors.
IIGCC’s Climate Governance Working Group
To meet investor demand, IIGCC has formed a new climate governance thematic working group to support enhanced engagement through new tools and investor support.
The Working Group is piloting two tools designed to help investors understand what is happening in practice at companies:
- Company Assessment Framework, a set of metrics to assess a company’s climate governance as a starting point for further engagement and analysis. This has been developed by IIGCC in consultation with the International Corporate Governance Network, which seeks to promote good corporate governance and investor stewardship globally through best practice standards and guidelines.
- Investor Engagement Questions, a set of questions to help support investors’ dialogues with companies, support engagement objectives, and to bridge gaps in disclosure – which can vary extensively from jurisdiction to jurisdiction – providing a clear sense of how climate is embedded throughout a company.
There is no one-size-fits-all approach to corporate governance. A company’s governance structure and practices should reflect its size, strategy, and sector, as well as its jurisdictional considerations and current circumstances. For this reason, the Framework focuses on how a company integrates its identified climate-related material financial risks and opportunities into its governance.
Central to both tools are the following questions:
- Does the chosen governance structure incorporate consideration of identified climate-related material financial risks and opportunities, with responsibility clearly assigned within the company?
- Does the board discuss these identified risks and opportunities with sufficient frequency and depth?
- Does the board have sufficient collective skills and experiences to effectively oversee such risks? How are these defined and maintained, with any gaps mitigated through training?
- Does the remuneration structure incentivise management to address identified risks in line with the company’s long-term success, with appropriate weighting, and without countervailing incentives?
Looking ahead
These tools are not the final word but a starting point for deeper discussion and dialogue between investors and companies. By encouraging companies to strengthen their governance of climate-related material financial risk, investors can help to ensure that Boards are equipped to oversee credible transition strategies and manage material risks – laying the groundwork for real economy decarbonisation.
For those wishing to learn more about our climate governance thematic work, or to subscribe to our regular updates, please fill this form.