Insider The 3rd edition of EY's Global Climate Risk Barometer highlights corporate climate risk reporting, but also highlights the need for more action . Half of businesses include some climate data in their reports. but only 3% do it in a comprehensive way In 2022, corporate reports on climate risk are expected to increase worldwide
Businesses around the world find it difficult to communicate the impact of climate change risks in their corporate reports, and urgent action is needed to meet the demands and expectations of regulators and investors, according to its latest release. EY World Exhibition, Global Climate Risk Barometer.
The report examines the published reports of more than 1,100 companies in 42 countries, based on the recommendations of the Climate-related Financial Disclosures (TCFD) Task Force on Climate Financial Disclosures. The TCFD was created to improve quality and increase the number of climate-related financial reports. Businesses are evaluated for the number of proposed requirements they publish (coverage) and the extent or detail of each disclosure (quality).
According to the EY report, only half of the companies evaluated worldwide (50%) make all the proposed disclosures and therefore have full coverage, while the average coverage is 70%. However, only 3% of companies meet the highest quality levels, while the average quality score is 42%.
Businesses can be affected by “transition risks”, which result from changes brought about by climate change in the economy and regulations. For example, certain industries may be affected by coal prices or by “natural hazards”, such as frequent thunderstorms, as a direct impact of climate change. The TCFD Recommendations provide a framework that businesses can use to report these risks, and include requirements for governance information, the impact of climate change on business strategy and planning, risk management, performance indicators, and goals.
In addition, the report reveals that only two-fifths (41%) of businesses said they had performed crucial scenario analysis – which is also a TCFD recommendation – to examine the potential extent and timing of specific risks and to prepare for possible adverse effects. At the same time, only 15% include climate change in their financial statements – indicating that they do not have reliable data or that they have not yet prepared for the potential impact of climate risk on their profitability. This low availability of corporate reporting was addressed by the G7 agreement, which sets out the steps to make climate reporting mandatory.
The disclosure of climate data varies considerably by country. However, the countries with the best and worst performance have not changed in the three years since the EY report was published. Countries with mature markets, where the State, shareholders, investors and regulators are actively involved in the dialogue on the risks posed by climate change, tend to have the highest score. In addition, countries where mandatory measures are to enter into force, such as the United Kingdom, score high on the quality of their reports.
The EY report sets out a number of steps companies can take to ensure they meet the new disclosure requirements. These include ensuring that their financial statements are directly linked to climate risk and that they are integrated into existing corporate risk frameworks, rather than being treated as a separate issue. According to the report, it is also preferable to publish climate risk alerts proactively and promptly, rather than waiting for the introduction of possible corresponding global corporate reporting standards.
Commenting on the findings of the investigation, Stavros Violaris, Associate Partner and Sustainability Head of EY Cyprus, said: “As awareness grows about climate change intensifies and pressure from the public, investors and regulators for more comprehensive reports from companies around the world. Our research shows that the level of information is improving, but still lags behind what is needed. “Businesses need to think about how their business models and strategies are impacted and incorporate detailed information about the risks and opportunities associated with climate change into their financial statements.”
