Press release

9 Aug 2021 Bucharest, RO

Businesses struggle to get to grips with climate risk disclosure

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EY Romania

Multidisciplinary professional services organization

  • Third EY Global Climate Risk Barometer shows progress on climate risk disclosure but highlights urgent need for more action
  • Half of all companies provide some disclosure, but only 3% do so fully  
  • 2022 set to see significant rise in climate risk disclosures around the world

Businesses around the world are struggling to manage the reporting of climate risks and should consider taking urgent action in order to meet the requirements and expectations of regulators and investors, according to the latest EY Global Climate Risk Barometer report.

The report examines the efforts made by more than 1,100 organizations across 42 countries to publish their climate-related risks and opportunities, based on the recommendations set by the Task Force on Climate-related Financial Disclosures (TCFD). The TCFD was established to improve and increase reporting of climate-related financial information. Companies are scored for the number of recommended disclosures that they make (“coverage”) and the extent or detail of each disclosure (“quality”).

According to the report, only half of companies examined around the world (50%) make all recommended disclosures and therefore have full coverage; and on average, coverage is 70%. However, only 3% of companies reviewed meet the highest levels of quality and the average quality score is 42%.

Companies can be impacted by “transition risks,” stemming from changes in the economy and regulation brought about by climate change. For example, specific sectors may be subject to a carbon price; or “physical risks” as a direct result of changes in climate, such as the consequences of increased storms. The TCFD recommendations provide a framework that companies can use to report these risks and they include requests for information on governance, impacts on strategy and planning, risk management and metrics and targets.

In addition, the report reveals that only two-fifths (41%) of organizations reviewed globally have disclosed that they have conducted crucial scenario analysis – which is also a TCFD recommendation – to examine the likely scale and timings of particular risks and prepare for the worst-case outcomes. It also shows that only 15% of businesses reviewed feature climate change in their financial statements – suggesting that they lack robust data or that they have not yet worked through the likely impact on the bottom line. This low level of disclosure was addressed by the recent G7 agreement on steps to make climate reporting mandatory. 

Climate change is a defining problem of our time, with devastating effects felt in all parts of the world, and Romania is not exempted. Companies are already feeling the impact of climate change, with increasingly frequent flooding affecting assets, fires destroying raw materials or periods of drought affecting freight trafficking. Even companies that are not directly affected understand that they risk losing customers, employees and investors if they do not take action. Thus, at a time when legislative pressures and public opinion are focused on decisive climate action, climate risks and opportunities should be the focus in companies' development strategies. Although globally organizations are making progress in reporting climate risks, the quality of these disclosures is still poor and, at the local level, progress is even weaker, as many organizations still do not pay attention to identifying climate risks specific to operations owned or controlled, do not carry out a scenario analysis and do not make concrete commitments, based on scientific data, in line with the trajectory for limiting global warming to 1,5°C. It is particularly important for the management of organizations to be aware that the risks associated with climate change are not only another reporting requirement, but are a business problem, with risks, but also associated opportunities, and to communicate to all stakeholders the commitments and how they manage the effects of climate change on the company, customers, employees and communities in which they operate.
Laura Ciobanu
Sustainability Manager, Climate Change and Sustainability Services, EY Romania

Disclosures vary dramatically by country, although the strongest and weakest performers have not changed over the three years in which the report has been published. Countries with mature markets where governments, shareholders, investors and regulators are actively engaged in the debate on climate risks tend to score most highly for coverage. Countries where mandatory regimes are due to come into force, for example the UK, score highly on the quality of their disclosures.

The report highlights a number of steps that companies can take to help ensure that they meet new disclosure requirements. These include ensuring that financial reporting is directly connected to climate risks and embedded into existing risk frameworks, rather than treating climate as a separate issue; and making climate-risk disclosures now rather than waiting for global reporting standards to be introduced.

Mathew Nelson, EY Global Climate Change and Sustainability Services Leader, says:  “It is clear that countries around the world are now taking climate risk disclosure more seriously than ever before, underlined by the recent G7 agreement to mandate climate reporting in line with the recommendations of the TCFD.

The COVID-19 pandemic has also been a real wake up call to business and governments alike on the need to protect the planet from major risks and it’s likely that the coming year will see a significant uptick in disclosure from companies around the world.”

About EY Romania

EY is one of the world's leading professional services firms with 298,000 employees in more than 700 offices across 150 countries, and revenues of approx. $37.2 billion in the financial year that ended on 30 June 2020. Our network is the most integrated worldwide, and its resources help us provide our clients with services allowing them to take advantage of opportunities anywhere in the world.

With a presence in Romania ever since 1992, EY is the leading company on the market of professional services. Our more than 800 employees in Romania and Moldova provide seamless assurance, tax, legal, strategy and transactions, and consulting services to clients ranging from multinationals to local companies. Our offices are based in Bucharest, Cluj-Napoca, Timisoara, Iasi and Chisinau. In 2014, EY Romania joined the only global competition dedicated to entrepreneurship, EY Entrepreneur Of The Year. The winner of the national award represents Romania at the world final taking place every year in June, at Monte Carlo. The title of World Entrepreneur Of The Year is awarded in the world final. For more

 

About the research

If climate disclosures are improving, why isn’t decarbonization accelerating? examines the efforts made by 1,100 companies across 42 countries to publish their climate-related risks, based on the recommendations set by the Taskforce on Climate-related Financial Disclosure (TFCD). The research was conducted by EY Global Financial

Accounting Advisory Services (FAAS) and looked at disclosures of some of the largest public companies

in high-risk sectors (as identified by the TCFD recommendations) in the following jurisdictions: Africa, Canada, Central/Eastern Europe, Central/South America, Greater China, India, Ireland, Japan, Middle East, Oceania, South East Asia, South Korea, Southern Europe, the UK, the US and Western/Northern Europe. Companies were scored on two different metrics: the coverage and quality of disclosures. Coverage – organizations were assigned a score (as a percentage) on the basis of the number of TCFD recommendations addressed by them. Quality – organizations that implemented all 11 recommendations were given a rating (out of 5) on the basis of the quality of the disclosure, expressed as a percentage of the maximum score.