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Jane Stevensen of CDP says the TCFD framework is a game changer, but warns that those companies lagging on managing their environmental impact must incentivise their boards to take real action
More companies are talking about climate risk at board level, but few are walking the walk, and turning awareness into action.
This is the main finding of new research from CDP, which found that among the 1,681 companies from 14 countries that disclose their climate-related matters, only one in 10 firms currently provide incentives for board members to manage climate-related risks and opportunities. That is despite the fact that more than 8 in 10 companies oversee climate change at board level.
The low proportion of benefits linked to climate-related objectives drastically reduces the likelihood that companies will do enough to tackle climate change.
The TCFD (Task Force on Climate-related Financial Disclosures) framework put forth by financial heavyweights Mark Carney and Michael Bloomberg nine months ago has been remarkably successful at putting climate more squarely on the agenda of corporate boards.
One of the core recommendations of the TCFD report is that all companies should disclose climate-related financial information alongside their mainstream financial filings. It also recommends environmental disclosure on four key areas – governance, strategy, risk management and metrics & targets – in the aim of bringing greater global standardisation to climate reporting.
TCFD is making management of climate change an issue for the most senior governance of all firms
TCFD’s role as a vehicle for change should not be underestimated. It is making management of climate change an issue for the most senior governance of all companies and creating a need for those at the top to be well versed on climate risk and opportunity.
The research shows that the international community must mind the widening gap between the leaders and laggards.
An oil refinery in Canada, which was lagging in the CDP survey. (Credit: Bruce Rayno/Shutterstock)
At the national level French, British and German companies are leading the way. France boasts the highest proportion of companies (78%) providing low-carbon products or services that enable avoided emissions. Meanwhile, Britain possesses the highest proportion of companies (96%) with board oversight of climate change. While Germany has the highest proportion of companies (29%) providing incentives to the board for the management of climate change issues.
At the other end of the spectrum China has the lowest percentage of companies disclosing GHG emissions. It also possesses the lowest proportion of firms (24%) that identify reputation and/or changing consumer behaviour as a risk driver. The good news though is that new mandatory reporting policies come into force this year that will serve to drive China in the right direction.
If business is going to go beyond a skin-deep approach ... then prioritising climate reporting needs to come from the top
North America is also lagging. The US has the lowest proportion of companies using (15%) and preparing to use (9%) carbon pricing. It also possesses the lowest proportion of firms with board oversight (65%). It is a similar story for its northern neighbour, with Canada owning the lowest proportion of businesses (2%) that provide incentives to the board for the management of climate change issues. The nation also has the second-lowest proportion (54%) of firms that provide low carbon products or services that enable avoided emissions.
Meanwhile, new regulations are expected to widen the gap even further between leaders and laggards in climate disclosure.
At an industry level, the healthcare sector was found to be the biggest laggard in disclosure. The sector had the lowest percentage (27%) of companies providing low carbon products or services that enable avoided emissions. Healthcare also recorded the second-lowest percentage of companies (80%) with board-level oversight of climate change issues.
If the business community is going to go beyond taking a skin-deep approach to combatting climate change, then prioritising climate reporting needs to come from the top. Management of environmental issues can no longer be the sole responsibility of sustainability teams. TCFD makes it clear that climate-related disclosure must be truly embedded in companies’ strategic priorities.
So why is it proving so difficult to get boardrooms to start acting on reporting climate-related financial information? The popular answer is that investor-led climate initiatives are in their infancy. More and more business leaders such as Black Rock’s chief executive Larry Fink are beginning to warn companies that they must understand how factors including climate change will affect their business.Awareness and oversight of climate at the board level is there, but financial incentives to manage these risks and opportunities are not. This will require investment.
A line needs to be drawn in the sand whether we will systematically embed a market failure or embrace a major opportunity to innovate and grow. As we approach a tipping point, companies need to drive board-level engagement with climate risk throughout the organisation. If climate-related information disclosure is embedded in corporate culture from the board to the front line with real emission reduction targets set we can narrow the growing gap between awareness and action.
Jane Stevensen is Task Force Engagement Director at CDP. The report is Ready or not: Are companies prepared for the TCFD recommendations
climate risk TCFD Black Rock climate change