Investors continue to push the pace of financial climate risk disclosures, but a lack of regulatory clarity remains an obstacle.
In a new report by ERM, in conjunction with The Yale Center for Business and the Environment, we assess the evolution of climate risk disclosures in three sectors - Oil and Gas, Energy Utilities, and Food and Agriculture - over three years.
We found a rapid response amongst companies to shareholder expectations for greater information. The research data and associated interviews reveal that leading companies are moving forward to better understand climate risk and disclose decision-useful information, even as investors’ expectations on the appropriate level of disclosure continue to evolve.
The critical findings of the research include:
- The investor goal of climate risk comparability has not yet been achieved.
- Forward-thinking companies are using climate risks for better strategic decision-making.
- The financial impact of climate risk has lagged in disclosures.
- Legal liability associated with climate risk disclosure continues to represent a challenge, particularly in the United States.
- There is a call to action for investors and regulators.
As investor and regulator action evolves, it appears that the pace of change in climate risk disclosure will vary based on sector and current leadership. Further, while our analysis suggests that some leading companies might slow down climate risk disclosures, the recent events of the COVID-19 pandemic may well serve as a trigger to re-accelerate disclosure amongst the leaders.
This paper is the second in a series that ERM produced in partnership with The Yale Center for Business and the Environment. Our first joint paper on this topic, published in May 2018, focused on how investors have been tracking a rising tide of data that relates broad environmental and social concerns with the financial performance of companies, in particular related to climate risk financial disclosures.
In our May 2020 paper, you will learn more about how investors and regulators are expected to play a critical role in achieving the goal of full disclosure of comparable financial impacts of climate change for many businesses.