A recent KPMG survey has found that a majority of companies do not acknowledge climate change as a financial risk in their annual reports. Of the minority that does acknowledge, very few attempts are being made to quantify or model the business value at stake
KPMG’s analysts studied the annual financial reports of 4,900 companies worldwide to understand how many acknowledge that climate change poses a financial risk to their business. They found that only 28% of these companies currently acknowledge the financial risk of climate change in their annual reports. Of the minority that does acknowledge climate-related risk, less than one in 20 (4%) provide investors with analysis of the potential business value at risk. Among the world’s 250 largest companies (G250), a higher 48% acknowledge the risk.
It found only five countries in the world where a majority of the top 100 companies mention climate-related financial risks in their financial reports: Taiwan (88%), France (76%), South Africa (61%), US (53%) and Canada (52%). In most cases, disclosure of climate-related risk is either mandated or encouraged in these countries by the government, stock exchange or financial regulator.
In terms of industries, companies in the Forestry & Paper (44%), Chemicals (43%), Mining (40%) and Oil & Gas sectors (39%) have the highest rates of acknowledging climate-related risk in their reporting. They are closely followed by the Automotive (38%) and Utilities (38%) sectors. Healthcare (14%), Transport & Leisure (20%) and Retail (23%) are the sectors least likely to acknowledge climate risk.
When looking specifically at the world’s 250 largest companies (G250), public acknowledgment of climate-related financial risk is more common but still far from universal. French-based multinationals lead with 90% acknowledging climate-related risk, followed by majors headquartered in Germany (61%) and the UK (60%).
Around two thirds of G250 companies in the Retail (67%) and Oil & Gas (65%) industries acknowledge the risk but only around one third (36%) of major financial services firms do so. However, the research found only six G250 companies that have informed investors of the potential financial impact of climate risk through quantification or scenario modeling.
KPMG’s Global Head of Sustainability Services, José Luis Blasco said: “Our survey shows that, even among the world’s largest companies, very few are providing investors with adequate indications of value at risk from climate change. Our findings support the need for initiatives like the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) that aim to improve corporate disclosure of climate-related risk.