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ESG

More firms disclose climate change information, but few disclose impact on business risks – report

While the majority of firms disclose information aligned with global climate change recommendations, few describe the financial impact of associated risks on their company, finds a new report.

The Task Force on Climate-related Financial Disclosures published its status report Wednesday on the extent to which companies in their 2017 reports included information that aligned with task force recommendations made in June 2017.

The Financial Stability Board task force compares disclosures of more than 1,700 firms from diverse sectors and with broad geographical representation against its recommendations. The four guidelines relate to the effective disclosure of climate-related financial risks and cover the themes on governance, strategy, risk management, and metrics and targets.

The report categorized company disclosure findings as "few," "some," "several," "majority" and "most." Proportions of companies within each category were not disclosed.

More than 50% of the companies surveyed disclose information aligned with at least one of the recommended disclosures. While many companies describe climate-related risks and opportunities, few disclose the financial impacts of climate change on their firms.

A minority of firms disclose forward-looking climate targets or the resilience of their strategies under different scenarios, including a 2 degrees Celsius or lower scenario.

The survey also found disclosures vary widely across industries, with more non-financial firms reporting climate-related metrics and targets than financial institutions. However, financial companies were found to be more likely to disclose how they have embedded climate risk into their overall risk management.

The survey also found that disclosures are made across multiple reports, with information provided in financial filings, annual reports and sustainability reports.

The report also outlined findings from 25 asset owners' disclosures. When it comes to governance, several asset owners provided information about the role of the board in overseeing climate-related issues, and several also provided information on the role of management. However, only some disclosed the roles of both the board and management.

Under the strategy theme, the majority of the 25 asset owners provided information about climate-related risks and opportunities, and how those have affected their strategies. Some also described time frames associated with their climate-related issues, and several mentioned the United National Paris Agreement — a climate change pact reached in 2015 — or the potential for varying scenarios related to climate change. However, only a few described the resilience of their strategies under different scenarios.

Regarding risk management, the majority of asset owners provided information on how they identify or assess climate-related risks, and the majority also described actions they take to manage these risks, such as engaging with money managers or companies.

Under the metrics and targets recommendation, the survey found the majority of asset owners described metrics used to assess or monitor climate-related risks, and a few provided several metrics with an explanation of their meaning. Several also provided information on targets used and performance relative to those targets.

Also Wednesday, the task force said the number of firms supporting the recommendations had grown to 500 with a market capitalization of more than $7.9 trillion; up from 100 firms when the recommendations were launched in June 2017. A comparative market cap figure was not available.

The task force will, at the FSB's request, publish a further status report in June 2019 for analysis of disclosures made in 2018 financial reports.