Shrinking the corporate disclosure gap on climate change

Environmental Risk Outlook 2019

Driving the news

Investors are demanding corporates share more information on exposure to climate risk. 

Why it matters

A ‘disclosure gap’ leaves investors without a clear picture of the risk their portfolios are facing, complicating decision-making and encouraging regulators to intervene.

How can companies shrink the disclosure gap on climate change?

Will Nichols

Head of Environment
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Watch out for

Generic climate risk information being usurped by data-led, contextual analysis. The disparity between investor expectations and what companies are currently disclosing is significant. A 2018 CDP report, for example, found 50% of companies disclose climate risks within a six year timeframe, giving investors little insight into long term physical and transition risks.

A growing body of legislation has pushed climate disclosure forward in the past decade, particularly in developed economies, and the TCFD recommendations are supercharging the movement – as seen by the seven-fold rise in companies adopting science-based targets from 2015-2018. But, even though companies are acutely aware of investor demands for greater information about the risks they are facing from climate change, such as scenario analysis, disclosures are still basic and are typically buried in CSR reports rather than being integrated into financial filings.

These disclosures make it difficult for investors to assess and come up with potential actions. Likewise, disclosed information is rarely contextualised: how can investors judge corporate actions to address, say, future climate-related water shortages without an accurate picture of water availability in all that company’s locations? Barrick, the world’s largest gold miner, is not the only company to complain that analysis in isolation can be superficial, distorted and misleading.

During 2019, we expect corporations to continue to close the disclosure gap by embracing standardised disclosure initiatives in increasing numbers. Meanwhile, investors’ thirst for information will be increasingly standardised through legislation that echoes California’s landmark 2018 bill requiring two giant pension funds to report publicly on the climate-related financial risk of their public market portfolio.

Interest in science-based targets grows in emerging markets

Next steps

The TCFDs already provide a template to test how their operations and portfolios can cope with climate change. But by working to understand risk at a sovereign and sub-sovereign level, companies can provide the contextual risk data investors are crying out for.

Our Environmental Risk Outlook 2019 covers some of the key and emerging environmental issues for the year ahead that investors and companies cannot afford to ignore if they want to mitigate their exposure to financial, reputational, and regulatory risks.

Will Nichols

Head of Environment