Companies “failing investors” on climate risk disclosures

6 June 2019

Major companies are failing to disclose sufficient detail about their exposure to the potential risks of climate change, an international task force reports.

Major investors are calling on companies to explain how climate change could impact their businesses, amid concerns that that inadequate information about the full scale of the risk can lead to the mispricing of assets and a misallocation of capital.

The report, published by the G20’s Task Force on Climate-related Financial Disclosures (TCFD) found that while climate related disclosure had improved since 2016, only about a quarter of companies disclosed information aligned with the TCFD’s key recommendations on climate-related business and investment decisions.

The Task Force reviewed financial filings, annual reports, integrated reports, and sustainability reports for over 1100 companies from 142 countries in eight industries over a three-year period. It found that the number of firms disclosing information on the resilience of their strategies, including different climate-related scenarios, had increased by just 3% between 2016 and 2018.

While more than 80% of companies do expect major financial impacts from climate change effects such as extreme weather patterns, rising global temperatures, sea level rises and increased pricing of greenhouse gas emissions, less than 30% of companies have fully assessed how the risks of climate change will affect their business, the report adds.

The climate disclosure group CDP, which produced the report for the TCFD, calculates that the cumulative financial impact of climate change on global companies could reach up to US$1 trillion, with many likely to be affected within the next five years.

CDP also argues that there are cumulative business opportunities related to climate change, adding that companies in the financial sector see the most potential revenue (USD$1.2 trillion) from potential new sustainable products & services such as low emissions products and services.