A new report from CDP and the Climate Disclosure Standards Board (CDSB) shows a gap between the way companies identify climate-related risks and opportunities, and how they are preparing to tackle them. The research into 1,681 companies across 14 countries and 11 sectors disclosing to CDP looks at the four areas of disclosure identified by the Task Force on Climate-related Financial Disclosures — governance, strategy, risk management and metrics, and targets — and highlights whether companies are best prepared to disclose information under those themes.
“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,” said Simon Messenger, Managing Director of CDSB.
“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.”
Of the 1,600 companies analyzed for the study, the vast majority acknowledge that climate change poses financial risks for their business. Research demonstrated that 83 percent of companies recognize the physical risks and 88 percent identify policy changes and new regulations as the main risks of transitioning to a low-carbon economy.
But when it comes to addressing these risks, there is still a gap between intention and action in many sectors and countries. 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.
“Overall, we see there is a surface level of preparedness from companies globally to have board-level oversight of climate risk and opportunity. Key drivers are investor action, company reputation and consumer reaction to climate risk. What we are not seeing is increased governance translating into climate change mitigation,” said Jane Stevensen, Task Force Engagement Director at CDP. “2018 is the year when companies need to step up climate action as we approach a tipping point. Fundamental to this is driving board level engagement with climate risk throughout the organization.”
One of the key recommendations from the FSB TCFD is for organizations to describe the resilience of their strategy to different climate-related scenarios, including a 2°C or lower scenario. Compliance with this recommendation will form part of the next CDP reporting cycle, while Ready or not: Are companies prepared for the TCFD recommendations? Focuses on the other recommendations.
Following the launch of the TCFD recommendations last year, there has been significant regulatory, investor and corporate activity and interest in developing the landscape for disclosure across many geographies. The challenge now is to move that disclosure on and embed it into corporate strategy and culture from board to the front line and set real emission reduction and renewable energy targets.