Many of the world’s biggest companies are still failing to properly embed climate risk considerations into their corporate strategies, leaving many businesses exposed to escalating risks resulting from climate impacts and the clean energy transtion.
That is the headline conclusion of a fresh study released today by consultancy giant EY, which assesses public climate risk disclosure data from more than 1,500 of the world’s biggest companies by market capitalisation against the guidelines of the Taskforce on Climate-related Financial Disclosures (TCFD).
The research, which covers firms across 51 countries and 13 different industries, found that despite agreeing climate targets, almost half of those surveyed – 47 per cent – did not disclose any transition plan detailing how they intended to deliver on their goals in 2023.
Moreover, 74 per cent of firms assessed do not include quantitative impacts of climate risks in their disclosures, either physical or transitional, which EY said contrasted with firms’ far more detailed consideration of non-climate related risks.
Matthew Bell, global climate change and sustainability services leader at EY, said the findings were reflective of a broader trend whereby climate strategies remain separate from wider corporate risk reporting.
“At a time when we should significantly ramp up our transitioning to a net zero economy if we are to meet our climate commitments… there is a concerning disconnect between the stated climate ambitions and the corporate actions to achieve them,” he said.
“Climate risk disclosure must not be viewed as a separate tick box exercise, but as an opportunity to inform wider commercial strategy and gain competitive advantage. This may be a pivotal moment for leaders who must adopt and deliver real change. Business should shift from a commitment mindset to one of action, where their decarbonisation strategy is not only embedded, but executed across their operations.”
EY’s fifth annual Climate Risk Barometer report measures companies on the number of TCFD- recommended disclosures they made in 2023, as well as the extent and detail of each disclosure.
Overall, the quality and scope of climate risk data disclosed by assessed firms in the past year has shown a slight improvement, due to greater investment of time and resources in disclosure efforts, as well as increasing pressure to align with investor, stakeholder, and regulatory expectations.
However, while firms are now disclosing climate risk data across the vast majority of TCFD metrics on average, the quality – or granularity – of that data remains patchy, the findings indicate.
The report gives an overall quality score for climate-related disclosures of 50 per cent, up from 44 per cent in 2022. Companies from the UK lead the way, with an average score of 66 per cent, up from 62 per cent last year. Japan, South Korea, Europe, and Canada also all scored above 50 per cent, rounding out the top six countries for quality, the report shows.
On a sectoral basis, industries exposed to the greatest climate risk impacts – including energy, mining, transport, telecommunications and technology – tended to have the most detailed transition plans in place, with at least 57 per cent of firms in these sectors disclosing such plans in 2023.
Agriculture, however, continues to trail behind, with just 43 per cent of firms disclosing a transition plan, according to the report.
Meanwhile, just one in three firms surveyed disclosed quantitative or qualitative links between climate-related impacts in their financial statements.
As many as 42 per cent of firms surveyed also failed to perform climate risk scenario analysis of their value chains and wider market dynamics, the report shows.
Bell said the findings showed there remained both “leaders and laggards” on corporate climate risk disclosure, with those in countries with stronger regulations generally leading the way, as he urged firms to elevate the importance of climate risk data at boardroom level to drive change.
“Unsurprisingly, countries with rigorous disclosure regulation and an engaged investor or policy maker community continue to move forwards, drawing on the recent TCFD disclosures and readying themselves for the new ISSB [International Sustainability Standards Board] requirements,” he said.
“Markets where there is a lack of any mandatory climate disclosure requirements pull the average down, and until this is addressed, scores will remain low.”
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