Climate and net-zero disclosure falling short, finds EY

Disclosures about climate risk and how corporates will meet net-zero targets are “falling short”, says EY in its latest Global Climate Risk Barometer. While 47% of surveyed companies have set net-zero targets, they have not disclosed transition plans to achieve their commitments, EY finds.

The report, based on analysis of disclosures from 1,500 companies in more than 50 countries, also reveals that 74% of companies do not include quantitative impacts of climate risk in their financial statements. EY says this “suggests a deep disconnect between organisations’ climate and corporate strategy”. It adds: “Climate change is not being considered in the same way as other material impacts.”

EY says its report indicates some progress in the quality of reporting, tracking a 6% improvement in both the coverage and quality of disclosures. But it criticises the rate of improvement as “not enough” to support net-zero targets. It points out that progress in the quality of disclosures was driven almost entirely by new requirements from the International Sustainability Standards Board  (ISSB) and “remains low”.

“The pace of corporate change remains too slow as we reach a point of no return where improvements in disclosures are not enough, and transformative corporate action is required at scale,” EY says.

Some markets outperformed the average for disclosure quality. This includes the UK, where 66% of companies meet the Task Force on Climate-Related Financial Disclosures (TCFD) standards on quality of disclosures. The UK was followed by Germany (62%), France (59%), Spain (59%) and the US (52%).

Companies disclosing in India (36%), China (30%), the Philippines (30%) and Indonesia (22%) were all highlighted for needing marked improvements in the quality of reporting, and held to account for lowering the average score to 50%.

Dr Matthew Bell, EY global climate change and sustainability services leader, says: “This year’s Barometer report shows there are both leaders and laggards when it comes to disclosure, with complexity existing regionally and across sectors.”

“Unsurprisingly, countries with rigorous disclosure regulation and an engaged investor or policy maker community continue to move forwards, drawing on the recent TCFD disclosures and readying themselves for the new ISSB requirements. Markets where there is a lack of any mandatory climate disclosure requirements pull the average down, and until this is addressed, scores will remain low,” he adds.

EY finds that sectors exposed to the greatest climate risks disclose the most detailed transition plans. This is led by the energy sector, where 60% of firms publish detail of transition planning, followed by mining, transport and telecommunications and technology. But EY says agriculture, in particular, is “falling behind”, with just 43% of surveyed firms disclosing a climate transition plan.

EY recommends three specific actions for companies going forward:

• Shift mindsets to take action, using disclosures to drive changes in behaviour and view climate risk compliance as an opportunity.
• Use data to drive carbon agendas and integrate it into risk management to decarbonise their operations.
• Elevate climate issues and climate data to the boardroom to inform corporate strategy and leaders so they can take a complete approach to climate impact across the organisation.

Dr Bell says: “At a time when we should significantly ramp up our transitioning to a net-zero economy if we are to meet our climate commitments, this year’s EY Global Climate Risk Barometer indicates that there is a concerning disconnect between the stated climate ambitions and the corporate actions to achieve them.”

“Climate risk disclosure should not be viewed as a separate tick box exercise, but as an opportunity to inform wider commercial strategy and gain competitive advantage,” he adds.