Editing IPCC:AR6/WGII/Chapter-17 (section)

===== 17.4.2.1.5 Environmental and social governance =====

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Environmental and social governance refers to voluntary or non-legally required actions taken by participating parties to achieve a commonly defined goal ( [[#Bodin--2017|Bodin, 2017]] ; [[#DeCaro--2017|DeCaro et al., 2017]] ; [[#Partzsch--2020|Partzsch, 2020]] ). While not explicitly described in the sectoral and regional chapters of this report, the maintenance and exercise of environmental and social governance decision-making strategies do enable adaptation practice and have become especially important when formal legal and policy regimes are not yet present. As formal regulation promotes clear and common understanding of climate risks and mechanisms to develop context specific appropriate solutions, voluntary code-making and self-regulation can forestall the need for legal action or can function as precursors to the formulation and implementation of legislation, laws and regulations.

Social and environmental governance has long been presented within climate risk decision-making, although more typically in the domain of climate mitigation ( [[#Wright--2016|Wright and Nyberg, 2016]] ; [[#Vandenbergh--2017|Vandenbergh and Gilligan, 2017]] ). Corporate climate decision-making emphasises the importance of profit motives in shaping decisions; however, reputational factors as appropriate environmental stewards can also be important when linked to sensitivity of other stakeholders such as investors, lenders, customers and employees ( [[#Vandenbergh--2017|Vandenbergh and Gilligan, 2017]] ). [[#Pulver--2011|Pulver (2011)]] notes that climate issues influence corporate decision-making more strongly in organisations that are networked with other organisations that also consider these issues and through direct experience with climate-related events and associated organisational learning.

Since AR5, more case studies of social and environmental governance within the domain of climate adaptation have become evident, especially within the context of adaptive management experimentation ( [[#Vella--2016|Vella et al., 2016]] ; [[#Beunen--2019|Beunen and Patterson, 2019]] ; [[#Blühdorn--2019|Blühdorn and Deflorian, 2019]] ). Environmental and social governance strategies for climate adaptation are diverse and reflect context-specific conditions of the decision-making process, including the role of the state, the individual and private interests, formality/informality, social responsibility, sources of financing, and transparency. Environmental and social governance enables the testing and definition of implementation solutions, enhancing the opportunities for defining successful adaptation ( [[#Surminski--2013|Surminski, 2013]] ). Several models and approaches to adaptive governance to promote adaptation and resilience in response to extreme weather events have been observed. These include polycentric and multilayered institutions, participation and collaboration, self-organisation and networks, and learning and innovation ( [[#Djalante--2011|Djalante et al., 2011]] ).

The effectiveness of social and environmental governance varies by sector. For example, in the private business sector, Aragòn-Correa et al. (2019) assess the effects of mandatory and voluntary regulatory pressure on firms’ environmental strategies. In summary, they find that analyses of the effects of voluntary pressure demonstrate that by themselves they are unlikely to bring about significant improvement in environmental outcomes. Professional organisations, however, have made progress in addressing sectoral standards relative to the adaptation process. This includes the development of new industry guidelines, codes, standards and specifications, in addition to the implementation of infrastructure inventories that incorporate evaluation of vulnerabilities and identification of priority at-risk areas (Chapter 14). Voluntary pressures by themselves are not likely to result in positive outcomes and instead should be coupled with mandatory regulatory pressure to achieve the environmental response desired ( [[#Bianco--2020|Bianco, 2020]] ).

Since AR5, another key development in environmental and social governance has been the establishment of the Task Force on Climate-related Financial Disclosures (TCFD), which aimed to develop guidelines for companies to voluntarily report the financial implications of two broad categories of climate risk: the transition risks of shifting to a lower-carbon economy and the physical risks of climate change itself ( [[#TCFD--2017|TCFD, 2017]] ). As of 2019, ~1340 companies with a market capitalisation of USD 12.6 trillion and financial institutions responsible for assets of USD 150 trillion have expressed support for the TCFD ( [[#TCFD--2020|TCFD, 2020]] ). An analysis of reports to the TCFD in 2016 showed that 83% of companies report on physical risks of climate change, and of these, 82% reported on strategies to adapt to some of the identified risks ( [[#Goldstein--2019|Goldstein et al., 2019]] ). The same analysis also noted that: (i) the total of estimates of assets at risk were two orders of magnitude lower than generally accepted estimates of total financial risk; (ii) a minority of companies consider risks outside of their own operations or in their value chains; (iii) most underestimate or do not estimate the costs of adaptation; and (iv) many assume linear impacts and responses, neglecting the potential for tipping points or acceleration in risk and potentially transformative adaptation requirements. At this stage, TCFD has influenced many companies’ thinking and comprehension of physical climate risk, but it appears too early to assess whether this has driven substantive responses to manage these risks.

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