Survey: Corporates 'not adequately prepared' for new climate disclosure calls

Growing numbers of listed firms may be preparing to report on climate-related risks in line with the recommendations set out this year by the Task Force on Climate-Related Financial Disclosures (TCFD), but significant numbers are still yet to develop a strategy for responding to investor calls for them to improve their climate reporting.

That is the headline conclusion from a new survey of firms that meet the threshold for reporting in line with TCFD recommendations, released today by sustainability financing specialist South Pole.

The survey found that just 18 per cent plan to disclose climate-related risks in line with the TCFD next year. Moreover, while 62 per cent of survey participants recognise a first mover advantage in disclosing in line with the TCFD framework, over half said they have yet to decide on an actual disclosure strategy and three quarters were still unsure when exactly they plan to start disclosing.

The survey only had 34 respondents, but its findings echo warnings across the investment sector that many listed firms are not yet ready to follow the best practices set out by the TCFD, despite growing calls from investors for them to do so.

Last week, a group of over 225 institutional investors with more than $26.3tr in assets under management pledged to engage with 100 corporates estimated to be responsible for around 85 per cent of total global greenhouse gas emissions on the climate-related risks they face. Specifically, the group will call on listed firms to follow the TCFD's recommendations for disclosing risks.

At the same time, Bank of England governor Mark Carney, who commissioned the TCFD recommendations through his role as chair of the global Financial Stability Board, revealed 237 companies with a market capitalisation of $6.3tr have now given their backing to its climate disclosure guidelines since their launch this summer.

However, while a host of high profile firms have backed the recommendations many listed firms around the world are yet to respond to the guidelines, and there are concerns that following the TCFD's recommendations will require a step up in the level of sophistication with which firms approach climate disclosures.

For example, in addition to calling on firms to report on their environmental performance and the climate-related risks they face, the guidelines also recommend that investors are provided with evidence of scenario planning, whereby firms detail how they will be impacted by a range of decarbonisation scenarios.

Today's survey suggests three quarters of respondents have not defined or identified scenarios to assess the future physical and transition risks of climate change.

Charles Henderson, corporate climate change expert at South Pole, said "businesses will have to reset their approach to climate change risk disclosure: it is no longer a promotional activity or a means to fulfil technical reporting requirements, but a crucial part of overall risk analysis to pinpoint emerging threats and opportunities".

However, speaking last week at the One Planet Summit in Paris Carney stressed that there were compelling business reasons for investors and corporates to follow the TCFD guidelines and properly engage with climate-related risks.

"You now have the mass of the financial sector saying 'we want to distinguish between those who can see the opportunities, those who can manage the risk, and a group of companies that just don't know the answer to these questions'," he said. "It's going to be more awkward to be in that last group."

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• Topics
• Investment
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• Carbon Accounting
• TCFD
• Mark Carney
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