How to Build a Winning TCFD Governance Structure: The 5-Step Framework That 95% of Companies Get Wrong
Hello, this is GLEC, a company specializing in carbon emission measurement for the logistics and transportation industry.
Why Most Companies Fail at Climate Governance
In Part 1, we covered the basics of TCFD. Now, let's tackle the foundation that makes or breaks your entire climate strategy: governance. According to EY's 2025 survey, 95% of companies that attempted TCFD disclosure scored lowest in the governance area.
Here's the hard truth: You can have the most brilliant climate strategy in the world, but without proper organizational structure and clear accountability, it's just expensive paperwork.
I recently spoke with a Fortune 500 executive who perfectly captured this challenge: "We know we need to do ESG. But when it comes to who's actually responsible for making it happen, everyone points to someone else. The CEO is busy, each department says it's not their job, and ultimately, nobody does it properly."
Today, I'll show you exactly how to build a governance structure that turns climate commitments into measurable results.
The 3 Fundamental Principles of Climate Governance
According to the World Economic Forum's 2025 Climate Governance Guidelines
The most successful companies follow three core principles that separate leaders from laggards in climate performance.
Principle 1: Crystal Clear Role Definition
Every person in your organization, from board members to front-line employees, must understand exactly what they're responsible for regarding climate action. Overlapping responsibilities create confusion, while gaps in accountability create failure.
Principle 2: Regular Performance Monitoring
Climate governance isn't a set-it-and-forget-it system. Successful companies implement monthly and quarterly review cycles with real-time data driving decision-making and continuous improvement loops.
Principle 3: Transparent Decision-Making
All climate-related decisions must be traceable, with clear documentation of reasoning and processes. This transparency builds stakeholder trust and ensures accountability throughout the organization.
Stage 1: Board-Level Climate Governance Design
The 3 Essential Board Responsibilities
Climate Strategy Approval and Oversight
Your board must receive climate risk and opportunity reports at least quarterly. They should approve annual carbon reduction roadmaps with dedicated budgets and make final decisions on major climate-related investments like electric vehicle fleet transitions and renewable energy conversions.
The board's job isn't to manage day-to-day operations but to ensure the company has robust long-term climate strategies that protect and create shareholder value.
Performance Evaluation and Compensation Linkage
Here's where most companies fail: they don't connect climate performance to executive compensation. Leading companies allocate at least 20% of executive performance evaluations to ESG metrics, directly linking carbon reduction target achievement to CEO and C-suite incentives.
When climate failure has real financial consequences for leadership, you'll be amazed how quickly priorities shift and results improve.
Climate Capability Building
Your board needs climate expertise. At least one board member should be a climate or environmental expert, and all board members should participate in climate change education at least twice annually.
Consider establishing an external climate advisory committee that meets quarterly to provide specialized guidance on emerging risks and opportunities.
Real-World Success Story: DHL Group's Board Structure
DHL established a Sustainability Committee under their board in 2024 with impressive results:
The committee chair is an independent outside director with a PhD in environmental engineering. The three-member committee includes the CEO, CFO, and external expert. They meet quarterly with emergency sessions as needed, and they monitor progress monthly through ESG dashboards.
This structure helped DHL achieve a 65% carbon reduction compared to 2020 levels while maintaining operational excellence.
Stage 2: Executive Leadership Role Definition
CEO Climate Leadership: The 4 Essential Elements
Vision Setting and Cultural Transformation
The CEO must personally announce climate targets and performance in annual addresses. All employees should participate in climate change education at least twice yearly, with innovation idea competitions and participatory programs creating engagement throughout the organization.
Resource Allocation and Investment Decisions
Successful CEOs allocate at least 10% of annual investment budgets to green infrastructure, establish separate climate-related R&D budgets (2-3% of revenue), and create dedicated ESG organizations with specialized personnel.
External Stakeholder Communication
The CEO should personally write messages for annual ESG reports, actively participate in industry ESG councils, and host quarterly ESG investor relations sessions.
Performance Management and Accountability
Leading CEOs chair monthly ESG review meetings, set department-specific carbon reduction targets with monitoring systems, and personally review improvement plans when ESG performance falls short.
C-Suite Role Distribution for Maximum Impact
CFO (Chief Financial Officer)
The CFO analyzes and reports climate-related financial impacts, manages carbon tax and emissions trading costs, measures ESG investment ROI, and handles climate risk insurance procurement and management.
COO (Chief Operating Officer)
The COO optimizes transportation routes for emission reduction, plans and executes green vehicle adoption, manages logistics center energy efficiency projects, and evaluates and manages supplier ESG performance.
CTO (Chief Technology Officer)
The CTO builds and operates carbon emission measurement systems, develops AI-based delivery optimization solutions, establishes IoT sensor-based real-time monitoring systems, and implements digital MRV platforms.
Stage 3: Operational Implementation Framework
Optimal ESG Organization Structure by Company Size
Small Companies (50-200 employees)
Start with one ESG coordinator who can combine this role with existing duties. Designate ESG leaders in each department (part-time roles) and arrange monthly external consultant advisory sessions.
Medium Companies (200-1000 employees)
Create a dedicated ESG team of 3-5 people with a team leader plus 2-4 specialists. Establish departmental ESG committees that meet monthly and maintain annual contracts with external specialized institutions.
Large Companies (1000+ employees)
Establish an ESG division or department with 10+ members. Create regional and business unit ESG organizations (3-5 people each) and maintain an ESG advisory committee with 5+ external experts.
4 Core Operational Processes
Data Collection and Analysis
Implement monthly emission aggregation by vehicle, route, and customer. Conduct quarterly trend analysis comparing year-over-year changes and annual target-versus-actual performance analysis measuring achievement rates and gaps.
Risk Monitoring
Analyze weekly weather information for potential transportation disruptions. Check monthly regulatory trends for new environmental law implementation schedules and conduct quarterly financial impact assessments for carbon taxes and fuel price changes.
Improvement Project Implementation
Launch vehicle fuel efficiency improvement projects targeting 5% annual improvement. Implement packaging weight reduction campaigns aiming for 1% monthly reduction and provide quarterly eco-driving education for drivers.
Reporting and Communication
Establish weekly status reporting for team leaders, monthly performance reviews for executives, and quarterly board reporting directly from the CEO.
Stage 4: KPI Development and Performance Management
Logistics-Specific ESG KPI Framework
Financial KPIs
Carbon-Related Cost Ratio
Measurement frequency: Monthly Target level: Under 3% of revenue Responsible party: CFO
ESG Investment ROI
Measurement frequency: Quarterly Target level: 15% or higher Responsible party: CFO
Green Service Revenue
Measurement frequency: Monthly Target level: 30% or more of total revenue Responsible party: COO
Operational KPIs
Scope 1 Emissions
Measurement frequency: Monthly Target level: 10% year-over-year reduction Responsible party: COO
Scope 2 Emissions
Measurement frequency: Monthly Target level: 15% year-over-year reduction Responsible party: Facilities team
Fuel Efficiency
Measurement frequency: Weekly Target level: Under 0.3L per km Responsible party: Transportation team
Innovation KPIs
AI Optimization Application Rate
Measurement frequency: Monthly Target level: 80% of routes Responsible party: CTO
New Technology Adoption
Measurement frequency: Quarterly Target level: 2 implementations per quarter Responsible party: R&D team
Stage 5: External Governance and Stakeholder Management
Supply Chain ESG Governance
3-Stage Supplier Management Process
Stage 1: Evaluation and Selection
Require ESG assessment forms (100-point scale) from all suppliers. Continue business relationships only with companies scoring 70 points or higher. Conduct semi-annual re-evaluations with improvement plan submissions.
Stage 2: Support and Development
Provide free ESG training programs quarterly. Offer financial support for green facility adoption (up to 100 million won). Create opportunities to participate in joint R&D projects.
Stage 3: Monitoring and Improvement
Require monthly emission data sharing. Conduct quarterly on-site inspections. Issue warnings for business relationship termination if improvements aren't implemented.
Customer ESG Collaboration Framework
B2B Customer ESG Partnerships
Offer Scope 3 management services for customer companies. Establish and pursue joint carbon reduction targets. Hold monthly ESG performance sharing meetings and develop joint green logistics innovation projects.
B2C Customer Communication Strategy
Provide carbon footprint information during delivery. Offer green delivery option choices. Send monthly ESG newsletters and issue carbon-neutral certificates.
Success Story: CJ Logistics ESG Governance Innovation
Organizational Structure That Delivers Results
CJ Logistics created an ESG Committee as an independent organization under the board, established an ESG Strategy Office as a CEO-direct organization with 15 members, and formed business unit ESG task forces with 5 members each, totaling 25 people.
Outstanding Performance (2024 baseline)
They achieved an 18% year-over-year reduction in Scope 1+2 emissions, reached 32% green vehicle ratio (industry-leading), invested 35 billion won annually in ESG (2.1% of revenue), and provided ESG education to 1,200 partner companies.
3 Key Success Factors
Strong CEO leadership with monthly direct ESG performance reviews, company-wide KPI linkage with ESG metrics reflected in all employee evaluations, and external expert utilization through long-term partnerships with global consulting firms.
Your 4-Week Governance Implementation Checklist
Week 1: Current State Assessment
Board Readiness Check
Is climate change included as a regular board meeting agenda item? Do board members include ESG experts? Are annual ESG education plans established?
Executive Readiness Check
Has the CEO publicly declared ESG targets? Are C-suite ESG roles clearly defined? Are ESG metrics included in executive performance evaluations?
Week 2: Organization Design
ESG Organization Setup
Are dedicated ESG teams or coordinators designated? Are departmental ESG leaders appointed? Are external expert advisory systems established?
Process Establishment
Are monthly ESG performance review systems in place? Are data collection and analysis processes defined? Are stakeholder communication plans established?
Week 3: KPI and Target Setting
Key Metric Selection
Have you established 3+ financial ESG metrics? Have you established 5+ operational ESG metrics? Are responsible parties clearly designated for each metric?
Targets and Roadmaps
Are 2030 carbon neutrality roadmaps established? Are annual and quarterly detailed targets set? Are budgets secured for target achievement?
Week 4: Implementation and Monitoring
Reporting Framework
Are weekly, monthly, and quarterly reporting templates available? Are board reporting materials standardized? Are external disclosure schedules and responsible parties determined?
Continuous Improvement
Are regular governance system review plans in place? Are external evaluation and benchmarking plans established? Are employee education and capability building programs operational?
The 4-Level Governance Maturity Model
Level 1: Basic (0-25 points)
Organizations at this level have temporary response systems, rely on individual CEO will, and conduct irregular activities.
Level 2: Developing (26-50 points)
These companies have established dedicated organizations, set basic KPIs, and started monthly monitoring.
Level 3: Advanced (51-75 points)
Advanced organizations have completed board governance, implement systematic performance management, and engage external stakeholders.
Level 4: Optimized (76-100 points)
Top-tier companies have established company-wide ESG culture, developed innovative business models, and secured industry leadership.
Where does your company currently stand?
The Foundation Determines Everything
Effective TCFD governance isn't built overnight, but it's absolutely achievable through systematic, step-by-step approaches. The key is starting right now rather than waiting for perfect plans.
Companies that take action today, even with small steps, will ultimately succeed over those waiting for ideal conditions.
In our next guide, Part 3, we'll explore climate change scenario analysis and strategic planning with even more specific and practical content for real-world implementation.
For carbon emission measurement consultation and inquiries, please visit the GLEC website.
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