“When the Financial Stability Board (FSB) originally set up the Task Force on Climate-related Financial Disclosures (TCFD) in 2015, the idea that a group of experts on mainstream finance considered climate change a systemic threat for our financial markets took many by surprise. Fewer than three years later, there are encouraging signs of progress and investors, corporates and policy makers increasingly recognize the potential material impacts of climate related risks and opportunities.
However, as our research paper shows, a declared ownership of these issues is not currently consistently followed by concrete steps. Therefore, urgent action is required across all sectors and industries to keep global warming under two degrees.”
This study looked at he disclosures from 1,681 companies (51 from India) across 14 countries and 11 sectors to the CDP Questionnaire in 2017, which were made around the time of the launch of the final TCFD recommendations in June 2017.
- Though a significant majority of companies report board oversight of climate-related matters, only 1 in 10 currently provide incentives for board members to manage climate-related risks and opportunities. Taking responsibility for climate action is not yet linked to boards’ or the management teams’ remunerations;
- Companies in France, the UK and Germany are leading the way in disclosing information across three out of the four thematic areas highlighted by the TCFD (Governance, Risk Management, Metrics and Targets);
- Companies from China, the healthcare and financial sectors are lagging behind in the four areas of disclosure identified by the TCFD, though China remains a disclosure market to watch out for in 2018 as new mandatory reporting policies come into force;
- New regulations are improving corporate climate disclosures and widening the gap between leaders and laggards;
- Organizations following the TCFD are encouraged to conduct an analysis of how they will perform under different scenarios, including a 2°C or lower world.
The vast majority of companies acknowledge that climate change poses financial risks for their business with 83% of companies recognizing the physical risks, and 88% identifying policy changes/new regulations as the main risks of transitioning to a low-carbon economy.
But when it comes to turning awareness into action, there is still a disconnect in many sectors and countries. For instance, more than 8 in 10 companies oversee climate change at the board level, but only 1 in 10 provides incentives for the management of climate change issues.
Simon Messenger, Managing Director, Climate Disclosure Standards Board said: “This analysis shows that the financial implications of climate change are now firmly on companies’ doorsteps and should be integrated in company-wide processes. It is now the time to set up clear strategies to tackle companies’ exposure to climate risks and seize new economic opportunities. It is also clear that the management of environmental issues can no longer be the sole responsibility of sustainability teams: it needs to be a priority area for companies’ boards to ensure it is truly embedded into their strategic priorities. We are more than ever at a crunch point between systemically embedding a market failure or embracing a major opportunity to innovate and grow.”