Business giants failing to disclose climate-related risks

Europe's largest businesses are failing to provide relevant climate-related data to investors, which could jeopardise the European Union's aims to deliver a "just" carbon-neutral transition by 2050.

Business giants failing to disclose climate-related risks

Just 6% had explored short

The Climate Disclosure Standard Board’s (CDSB) “Falling short?” report outlines the data disclosed by Europe’s 50 largest listed companies, which have a combined market capitalisation of $4.3trn.

According to the report, more than three-quarters (78%) of the companies are failing to report climate-related risks, despite both the EU’s Non-Financial Reporting Directive and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) calling for such data to be included.

The CDSB found that 90% of companies had disclosed at least one climate or environmental risk, only 54% had considered both transitional and physical risks while just 6% had explored short, medium and long-term risks that could emerge as the world moves along the low-carbon transition and as the climate impacts become more profound.

“This report was designed to provide a snapshot of how companies are reporting to provide an evidence base for the revision of the EU Non-Financial Reporting Directive. However, what we now have on our hands is a stark warning that many companies are not only falling short of considering the strategic and financial impacts of environmental and climate-related matters on their business, but that investors are not receiving substantially comparable and reliable information to guide their decision-making and capital allocations,” Mardi McBrien, managing director, CDSB said.

“More effective regulation is needed to ensure that companies are delivering the right information to investors. The current requirements of Directive haven’t produced the desired results, despite best intentions, and we need to move away from the mentality of reporting for the sake of it. Our findings show a revision of the Directive is the right approach and this report lays out clear recommendations to ensure that regulatory changes facilitate the effective flow of truly decision-useful information and resulting capital”.

CDSB warns that investors need access to better data to help make informed decisions that will assist with the EU’s Green Deal, which includes a 50-55% emissions reduction target for 2030; a climate law to reach net-zero emissions by 2050; a transition fund worth €100bn and a series of new sector policies to ensure all industries are able to decarbonise.

While the Covid-19 outbreak has slowed the EU’s implementation of the Green Deal, MEPs are meeting this week to outline a green recovery fund to the pandemic.

The study also found that 42% of companies had omitted data and information that others from their sector had considered a material impact in relation to environmental and climate-related risks.

Mandating TCFD

The TCFD has revealed that more than 1,000 organisations are supporting its recommendations, including corporates with a combined market cap of $12trn and investors with $138.8trn of assets under management collectively.

The TCFD recommendations urge organisations to achieve board-level governance of climate risk and opportunity assessments; develop strategies aligned with global climate targets; disclose risk management processes and metrics and report annually on greenhouse gas (GHG) emissions. The strategy piece notably includes a recommendation for firms to conduct scenario analysis, mapping how different global temperature increases, including the Paris Agreement’s 2C trajectory, would impact their financial standing.

The UK Government, meanwhile, has said it will mandate TCFD-aligned disclosures for certain large organisations within three years, under its Green Finance StrategyCalls are now growing for more Government clarity ahead of the TCFD mandate to help businesses determine how to meet its scenario analysis requirements.

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Matt Mace

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