Survey: Two-thirds of UK businesses will include climate risks in this year's financial reports

Two-thirds of the UK's largest 100 companies are planning to incorporate climate risks in their annual financial or combined report this year as client, investor and customer demand for transparency on sustainability issues grow.

100 board-level employees at the UK's largest companies were surveyed by IPSOS Mori, on behalf of the Carbon Trust

100 board-level employees at the UK's largest companies were surveyed by IPSOS Mori, on behalf of the Carbon Trust

That is a key finding of a new survey from environmental consultancy Carbon Trust, which quizzed 100 board members to garner their company’s approaches to sustainability reporting frameworks, climate change mitigation and natural capital accounting.

Of the respondents, 67% said their firm’s annual report for 2019 would link climate challenges to financial and material risks. However, less than one-quarter (23%) said they would follow the Task Force on Climate-related Financial Disclosures’ (TCFD) recommendations for this disclosure in full.

The recommendations commit businesses to explore whether they should adopt scenario analysis and report the impact of different scenarios – including the 2C pathway of the Paris Agreement - would have on their operations. They additionally entail the promotion of senior management engagement on climate-related issues.

Despite a low uptake of the TCFD framework for 2019, seven in ten respondents to the Carbon Trust’s survey said that the model of reporting would be likely to increase their brand’s value – either in a reputational or financial capacity. Respondents also cited improved access to capital and higher credit ratings as potential perceived benefits of TCFD alignment, with the majority (72%) expressing a desire to adopt the recommendations within the next three years.

Similarly, three-fifths of respondents said they could not foresee any negative impacts from publishing information regarding climate-related risks and opportunities for their firms in the short-to-medium term.

The findings come shortly after research from the World Economic Forum (WEF) concluded that extreme weather events and failures in climate change mitigation and adaptation are the biggest risk to the world in 2019.

“We are now able to see how our changing climate is moving markets more quickly than many had anticipated - incidents of extreme weather are increasing, the adoption of clean technology is accelerating and more customers are changing their behaviour,” the Carbon Trust’s managing director of business services Hugh Jones said.

“For corporate leaders, going through the process of assessing their company’s climate change opportunities and risks is a vital strategic tool for navigating the necessary transition to a sustainable, low-carbon economy.”

Climate disclosure: The new normal?

There are currently more than 200 TCFD signatories across all sectors, accounting for $44bn in average market capitalisation, with an additional 300 firms having expressed a desire to adopt them in future.

But despite growing interest in the framework, many corporates are failing to accurately convert climate impacts to financial or reputational damage, according to the TCFD’s latest status report.

Similarly, the Carbon Trust survey found that six in ten UK-based corporates are yet to share information on improved climate disclosure with any important investors or other key stakeholders.

This has led green campaign group ShareAction to call for investors to demand greater transparency from the companies they invest in, particularly in regard to environmental sustainability.

"It's disheartening to see that so few large institutional investors are asking UK plc to come clean on their climate credentials, because these data are essential to encourage companies to become climate-safe investments,” ShareAction’s investor engagement manager Anne-Marie Williams said.

“Investors owe it to their clients and the millions of workers whose savings they are investing to protect us from loss that is greater than just financial."

The Carbon Trust findings stand in contrast to a number of moves taken by the investment community to champion sustainable finance in recent months. For example, Legal and General Investment Management (LGIM), APG and Robeco recently joined more than 70 other corporates in pledging to act to prevent deforestation in Brazil's tropical savanna.

Moreover, banking and insurance giants are increasingly announcing plans to make their portfolios more sustainable by divesting from coal companies and those in other carbon-intensive sectors. LGIM announced last year that it would divest from a host of companies it believes are showing "persistent inaction" on addressing climate risks.

However, recent research from UBS found that progress among the UK’s investment community has been somewhat slower, largely due to the uncertainties posed by Brexit.

Sarah George


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