A new report by EY sheds light on the ongoing struggle of businesses to effectively manage climate risks. While transparency regarding climate-related risks has increased, companies continue to grapple with translating this knowledge into concrete carbon reduction measures.
Now in its fifth year, the EY Climate Risk Barometer surveyed over 1,500 companies across 13 climate-vulnerable industries and 51 countries, assessing both the quantity and quality of climate-related disclosures.
Disclosure coverage, which measured by the percentage of Task Force on Climate-Related Financial Disclosures (TCFD) recommendations addressed, reached an encouraging 90% in 2023, up from 84% in 2022. South Korea led the way with 100% coverage, while the UK experienced a slight decline, dropping from 99% to 98%.
The quality of disclosures also improved, rising from 46% in 2022 to 52% in 2023. The UK emerged as a frontrunner in this area. But, despite the progress, the authors expressed concern about the overall score, noting that a score of 52% remains “concerning” given it has now been eight years since the launch of the TCFD.
Companies facing the most significant exposure to transition risk, such as those in the energy sector and financial institutions, generally demonstrated better disclosure practices, scoring higher in both the coverage and quality of their reporting.
Transition planning, which the study defined as “a time-bound action plan that clearly outlines how an organisation will pivot its existing assets, operations, and entire business model toward a trajectory that aligns with the latest and most ambitious climate science recommendations,” was found to be ‘underwhelming’. Only 53% of surveyed companies have disclosed some form of transition plan, leaving the remaining 47% without a clear roadmap for climate action.
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In this area, the report concludes that businesses have a significant task ahead of them, not only in meeting the disclosure requirements of the Corporate Sustainability Reporting Directive (CSRD) but also in taking concrete steps to implement their climate action plans.
Furthermore, the report found that companies are still more focused on risks than opportunities when it comes to climate disclosures. While 77% of the assessed companies had conducted risk analysis, only 68% had explored potential opportunities.
“We are starting to see a lot more focus from organisations on their climate strategy. In far too many cases, however, it remains divorced from corporate strategy,” said Dr. Matthew Bell, EY’s Global Leader, Climate Change and Sustainability Services.
“Climate strategy is often devised and managed by sustainability functions, focused largely on emissions reduction, and fails to address the organisation’s overall contribution to climate change and how it can be mitigated. Neither does it consider the physical impacts of climate change on the organisation and its supply chains. There also tends to be a worrying lack of engagement with the question of how business will fare in a rapidly decarbonising economy.”
For businesses lagging behind, the report offers three actions they should look to take urgently. First, businesses should shift their mindset of disclosure from just being a burden, finding that those creating detailed, coherent and measurable data in disclosures also appeared to have the most energy and rigour around strategy and action.
Next, businesses should use data to drive action, handling it in such a way that it can be integrated into strategy and risk management. Lastly, conversations around climate impact needs to reach the board level, this in turn allows leaders to take a holistic approach to embed it across the business.
You can read the full report here.
