On average, coverage scores for companies from markets where climate change disclosures are relatively mature, such as the UK, France, Germany, Switzerland and Australia, were the highest. Interestingly, the US scored highly, despite a lack of coordinated economy-wide policy directives.
One of the key questions coming out of the analysis is whether the high scores are primarily because of an economy being more developed, or whether there are other factors at play. The fact that Scandinavian countries scored noticeable lower, while South Africa scored comparatively higher suggests there is more to it that the maturity of the economy. UK, France, Germany, Switzerland and Australia have had mandatory reporting regulations in place for some time, while South Africa has also implemented mandatory integrated reporting requirements. Although the driver in the US hasn’t necessarily been regulation, the prevalence of shareholder resolutions and the threat of class actions has had a similar impact.
So, perhaps prior regulations for nonfinancial reporting is the critical factor. This is likely true in economies, such as India and UAE. However, this is perhaps not the full story.
In countries or regions, such as mainland China, Singapore, Hong Kong and South Korea, companies scored on average significantly lower than other regions, despite having some mandatory requirements. It also doesn’t explain with the Scandinavian countries’ scores are lower. The reality is that other contributing factors include:
- The maturity of the regulation and whether it is specific to climate change (e.g., mainland China, Singapore and Hong Kong, where the mandatory reporting requirements are quite general)
- The maturity of reporting across companies, rather than just the market leaders (e.g., in Australia, France, UK and Germany, where there is more depth in maturity of reporting)
- The potential risk of litigation in an economy (e.g., why the litigation risk is high in the US and low in China)
The story for quality is not nearly as good as it is for coverage. Even in highest-performing countries, such as Australia and France, there is a long way to go for companies to meet the majority of the TCFD recommendations. The extremely low scores in critical countries, such as India, mainland China and South Korea, as well as even lower scores in parts of Europe, US and Canada mean that investors are unlikely to have the information they need to make decisions for the bulk of their portfolios.