Climate risk governance: we can no longer ignore the ‘gray rhino’

A “gray rhino” is a highly probable event that is likely to have severe implications yet is often ignored by society. A prominent example is climate change. Despite the government’s commitment to the UN’s sustainable development goals (SDGs), including access to clean water and sanitation, affordable and clean energy and climate action, the country is increasingly experiencing environmental threats such as severe droughts and flooding.

Such negative effects of climate change are evident around the globe. The UN reported that human activity has changed about three-quarters of the land environment and two-thirds of the marine environment pre-2020. Scholars are thus increasingly focusing on so-called sustainability science. They are investigating how the needs of present and future generations can be met while reducing poverty and conserving Earth’s life support systems.

The Global Footprint Network annually estimates “Earth Overshoot Day”. On this day humankind’s demands exceed what the planet can regenerate, and humanity operates in an ecological deficit for the remainder of the year. In 1980 it was November 4. Forty years later it was more than two months earlier, on August 22 2020. Disconcertingly, this year Earth Overshoot Day took place on July 28.

In 2021 the Institute of Directors published a paper to guide local directorates’ responses to climate change. Based on the view that the achievement of the SDGs depends on partnerships between the government, companies and civil society, this industry body urges corporate leaders to take responsibility for climate change and mitigate material risks.

We gauged the views of selected representatives of various institutions on climate risk governance in SA, including directors and members of sustainability-focused board committees, asset managers and a prominent local shareholder activism organisation. Key climate concerns identified included challenges to reduce carbon emissions, food insecurity and insufficient access to potable water.

The interviewees argued that the negative effects of climate change fall disproportionately on certain stakeholders, in particular low-income individuals given the country’s socioeconomic context. According to the  Institute of Risk Management SA is ranked 12th largest greenhouse gas emitter globally. It is thus essential that local organisations duly account for their carbon emissions, and for those in their supply chain.

All the interviewees deemed carbon emissions a major externality in the local context. Yet climate change measurement was described as highly complex. Some interviewees believed the measurement of carbon emissions and the disclosure thereof should be made mandatory. Others emphasised the key roles performed by directors to enhance climate governance in the context of voluntary compliance.

Scholars agree that it is challenging to estimate the cost of climate-related externalities. The interviewees also expressed substantial concerns about transparency in this regard. Nomination committees and shareholders should hence ensure that knowledgeable directors are nominated and appointed to handle sustainability concerns. The interviewees argued that local companies would then become more sustainable and have a higher likelihood of reaching their sustainability targets. Directors should also receive training to stay up to date with the latest developments.

The participants disagreed on whether director remuneration should be linked to sustainability metrics. Those who were not in favour of linking these metrics to directors’ pay argued that board members might try to “tick the required boxes” by including climate change initiatives. This approach could be used by executives to portray the company in a positive light to obtain the associated incentives.

Climate-related opportunities that boards can explore were also identified by the participants, in particular renewable energy. Yet some interviewees were concerned about the local power utility’s seeming reluctance to allow the placement of high volumes of renewable energy on the grid. Climate change thus creates opportunities for businesses to grow and diversify their operations, while reducing their environmental footprint. The issuance of green bonds to fund renewable energy projects is gaining prominence in the country.

Concerns related to climate change have been raised over decades. However, the energy crises in Europe and SA are shining a spotlight on the stark outcomes. A growing number of stakeholders are recognising the importance of collectively approaching this “gray rhino”. The government should be urged to tackle SA's dire energy provision challenges and explore the promising possibilities related to renewable energy, specifically solar and wind.

If citizens become more knowledgeable on climate change and truly understand the grim implications of ignoring the “gray rhino” we could collectively slow down climate change. Together we might be able to ensure a liveable future for the generations to come.

• Mans-Kemp and Viviers are professors in the department of Business Management at Stellenbosch University. Jarvis is a postgraduate student in the same department.