EY findings continue to expose the lack of depth in climate-related disclosures. There has been an incremental improvement compared to 2017, however there is room for improvement.
This is particularly evident in the area of strategy. Almost all sectors of the economy face major disruption from climate transition and climate impacts over the coming years. Yet the majority of companies are still not engaging seriously with these risks, or positioning themselves to take advantage of potential opportunities.
With investors paying increasing attention, this is likely to affect their reputation and valuation even before the impacts are fully realised. An example of this is Norges Banks’ recent divestment announcement, which only resulted in the divestment of oil and gas companies that had not integrated climate solutions, such as renewable energy, in to their strategy. This type of action causes a short-term valuation change based on the company’s strategic understanding of climate risks and opportunities.
Assessing climate-related risks and opportunities can be complex, and may require detailed analysis. However, disclosing information on climate change scenario planning not only addresses the TCFD recommendations, but also provides companies with new inputs into business strategy, and engages increasingly socially aware employees with the strategy, which in turn enhances internal capability and processes.