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Companies Showing Disconnect Between Climate Risk Awareness & Action

A new report published this week by CDP and CDSB shows the existence of a clear gap between many companies’ awareness of climate risks and opportunities and their preparations for actually tackling them, revealing a disconnect between awareness and action. 

A new report published this week by CDP and CDSB shows the existence of a clear gap between many companies’ awareness of climate risks and opportunities and their preparations for actually tackling them, revealing a disconnect between awareness and action.

The new report published this week by CDP (formerly the Carbon Disclosure Project) and the Climate Disclosure Standards Board (CDSB) analyzed data on 1,681 companies across 14 countries and 11 sectors that currently disclose their climate-related actions to CDP in relation to the four areas of disclosure identified by the Task Force on Climate-related Financial Disclosures (TCFD) — governance, strategy, risk management, and metrics & targets — which was launched at the request of G20 leaders in 2015. The new research highlights whether or not companies in specific sectors and countries are ready to disclose material climate-related information according to the TCFD recommendations.

The research showed that a vast majority of companies acknowledge the financial risk posed by climate change to their businesses, with 83% of companies recognizing the physical risks and 88% identifying policy changes and new regulations as the main risks of transitioning to a low-carbon economy.

However, awareness is one thing, and the report highlights that there is still a significant disconnect between awareness and action. For example, more than 8 in 10 companies oversee climate change at the board level, but only 1 in 10 provide incentives for the management of climate change issues. Or, to put it another way, as the authors of the report explain, “there continues to be a noticeable gap between identifying and owning climate-related risks and opportunities, and acting strategically to tackle them.”

“Overall, we see there is a surface level of preparedness from companies globally to have board level oversight of climate risk and opportunity,” explained Jane Stevensen, Task Force Engagement Director at CDP. “Key drivers are investor action, company reputation and consumer reaction to climate risk. What we are not seeing is increased governance translating into climate change mitigation. 2018 is the year when companies need to step up climate action as we approach a tipping point. Fundamental to this is driving board level engagement with climate risk throughout the organization.”

Companies located in France, the UK, and Germany are among the most likely prepared to disclosure information across governance, risk management, and metrics & targets. Only 68% of North American companies have board-level oversight, compared to 95% of companies in France, Germany, and the UK.

More than 8 out of 10 companies reporting to CDP already disclose the financial impacts from the physical and transitional risks associated with climate change, with companies in South Korea (97%), India (94%), and the UK (94%) having the highest rate. It is important to note, however, that those with the lowest ranking aren’t that far away, with Germany (75%), Australia (83%), and the US (83%).

9 out of 10 companies already disclose their Scope 1 and/or 2 emissions, and 8 out of 10 disclose at least one Scope 3 emission category. Chinese companies disclose the least in all categories (6 out of 10 for Scope 1 and 2 emissions, 3 out of 10 for Scope 3 emissions), where conversely, the UK has the highest proportion with more than 97% of companies disclosing Scope 1 and 2 category level emissions.

“This analysis shows that the financial implications of climate change are now firmly on companies’ doorsteps and should be integrated in company-wide processes,” added Simon Messenger, Managing Director, Climate Disclosure Standards Board. “It is now the time to set up clear strategies to tackle companies’ exposure to climate risks and seize new economic opportunities. It is also clear that the management of environmental issues can no longer be the sole responsibility of sustainability teams: it needs to be a priority area for companies’ boards to ensure it is truly embedded into their strategic priorities. We are more than ever at a crunch point between systemically embedding a market failure or embracing a major opportunity to innovate and grow.”

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