What Is Your Corporate Climate Risk Exposure?

The Taskforce for Climate Financial Disclosures (TCFD)’s Recommendations, released in June 2017, caused a stir in financial markets worldwide. With companies facing increasing pressure from shareholders and regulators, we are starting to see increased climate risk related disclosures, but not to the extent or at the rate expected.

In response to this challenge in an Australian context, EY’s inaugural 2017 Climate Risk Disclosure Barometer showed that companies were not producing comprehensive Climate Risk reporting that would meet the recommendations established by the TCFD.   While most entities reported Scope 1 and 2 greenhouse gas (GHG) emissions, the disclosure of emissions did not always align with the key risks reported by the entities as being the most pertinent to their organisation.

In the 2018 Climate Risk Disclosure Barometer (to be launched at the CMI Summit in May 2018), Summit attendees will be provided with an update on progress in climate related disclosures over the past year, with the report analysing the disclosures from 124 companies in the ASX200 in sectors facing the highest levels of climate risk (according to the TCFD), and 20 of Australia’s largest superannuation funds. The 2018 Barometer includes the use of two new key metrics for the assessment of company performance, being the coverage of the recommendations by company, as well as the quality of the disclosures made. This approach provides a more holistic view of company performance against the Recommendations by providing insights into not only the number of Recommendations responded to, but also the depth and quality of the responses.

Further, the 2018 Climate Risk Disclosure Barometer provides sector-specific insights into the level of disclosure within the areas of the Australian economy identified by the TCFD as most exposed to climate related risk and seeks to answer a number of pressing questions, such as:

  1. How have the increased demands from shareholders, seen through increased numbers and support of shareholder actions in 2017, impacted disclosures?
  2. To what extent have companies responded to the TCFD Recommendations in their public disclosures?
  3. Have climate risk disclosures made their way into annual reports and financial statements, or are they still stand-alone, specialist sustainability reports?
  4. How do different sectors approach transitional and physical risk in light of their exposure to these risks?
  5. Given recent decisions on directors’ duties and climate risks, are boards taking responsibility for managing climate related risks?

Interim findings from the 2018 Climate Risk Barometer show that, on average, banks are leading the way in regards to the quantity and quality of their climate-related financial disclosures, followed by the energy sector. Both of these sectors also led the way in regards to including 2 degree warming scenarios in their scenario planning and risk assessment.  Across the TCFD’s four recommendation categories (governance, strategy, risk management, metrics and targets), the highest average coverage and quality scores were seen in the governance category, with the lowest scores in disclosures relating to strategy.

Join us at the Summit and to launch EY’s 2018 Climate Risk Barometer, and join with leading business experts to discuss the financial implications of Climate Risk and the TCFD across Plenary adn workshop Sessions. The Barometer will be available to download from the EY website following the event:  http://www.ey.com/sustainability. and you can sign up to their mailing list here.

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