Companies around the world remain modestly improving on their climate-related disclosures, according to new research just out from global professional services firm EY. Only just over a third report climate-related financial impacts in their financial statements. The research firm surveyed over 1,400 companies from 51 countries and 13 sectors in its sixth annual Global Climate Action Barometer. EY reviewed how well companies’ disclosures on climate matched their climate action plans, grading the quality of disclosure against Task Force on Climate-related Financial Disclosures recommendations.
Though coverage of TCFD recommendations was at an all-time high of 94%, the quality of reporting lags in at an average of 54%, just up one percentage point from last year’s 50%. These among other effects, in the past years have meant that 67% of companies used scenario analysis to evaluate climate-related risks. Still, merely 36% disclosed climate-related financial risks in their financial statements, reporting mainly as qualitative rather than quantified. The regulatory mandates have then easily set places like the UK and the EU as a jurisdiction leading in disclosures’ quality. On the contrary, the U.S. lags behind with its average score.
Scope 2 is mostly where companies direct most of their efforts at reducing emissions. All of these Scope 2 are concerned with the purchases and energy used of companies as opposed to a holistic Scope 3 of the greater value chain, which typically is the largest percentage of a company’s carbon footprint. Of course, this is because of the fact that these are Scope 2 efforts, including renewable procurement, are relatively more economically viable and easier to execute. Only 18% of companies have included Scope 3 decarbonization actions in transition plans.
Transition planning is another weak area where only 41% of the companies reported an active transition plan, while 21% of the companies planned to establish one. The UK and EU scored the highest in this category with 66% and 59%, respectively, having a transition plan. Additionally, while 83% of companies have short-term targets, half of the companies have set long-term emissions goals past 2030 and less than a quarter of those validated through SBTi.
This, according to the leaders of EY, Dr. Matthew Bell, and Christophe Lumsden, is due to decarbonization targets, which they argue are a bridge between ambition and action. According to them, most of the company is facing challenges such as balancing profitability with climate goals while getting limited access to low-carbon technologies and the complexity of set targets will begin to make things complicated. They noted that “most companies seem far from ready for the disturbances caused by climate change; most of them do not have hard financial planning designed for the transition to a net-zero economy.”.