Court Investors with Better Climate-Risk Reporting, Says Ceres

(Photo Credit: Sean_Marshall, Flickr Creative Commons)

With investors putting pressure on large companies to report on climate risks and opportunities, most of the largest companies are complying, and are using industry-wide disclosure frameworks for reporting, according to a new analysis of nearly 500 of the largest companies on the Forbes Global 2000 list from sustainability nonprofit Ceres. But only a small percentage of companies disclose the business relevance of these risks and opportunities, and only a handful provide third party assurance on these disclosures.

While 70% of companies analyzed in the Ceres report used disclosure frameworks such as the Global Reporting Initiative (GRI) standards, just 23% provide detailed disclosure of materiality practices - that is, how their sustainability results are used to inform strategic decision-making.

Climate-risk reporting to investors has become a big deal: last year, an S&P Global report showed that nearly all (95%) of investors polled for the study said they plan to engage with companies they invest in about their sustainability profile, and that a company’s climate-risk profile has become a key driver of an investor’s decision-making.

But Other Frameworks Can Support GRI, Ceres Says

Ceres, the organization which helped develop the GRIs, says it is the most comprehensive and widely used global framework for sustainability reporting, covering a wide range of economic, environmental and social topics. Specifically, the GRI design supports the development of disclosures that meet the needs of a wide variety of investors and other stakeholders. “The use of the GRI standards is now the expectation, rather than the exception,” according to the report, which urges all companies to use the GRI standards in their sustainability disclosures.

However, Ceres says, other sustainability disclosure standards can help companies hone their disclosures for specific audiences.

Specifically, investors are strongly recommending that companies use the new disclosure standards developed by the Task Force on Climate-related Financial Disclosure (TCFD).

The TCFD standards push companies to disclose how climate-change risks pose actual financial impacts on a company’s performance instead of simply revealing their progress on sustainability issues. By analyzing what might be most material to investors and thus improving their disclosures, companies can meet “increased investor demand for strategic, transparent, and forward-looking information,” says Veena Ramani, director of the Capital Market Systems program at Ceres.

The TCFD recommendations are designed to “solicit consistent, decision-useful, forward-looking information on the material financial impacts of climate-related risks and opportunities, including those related to the global transition to a lower-carbon economy,” according to the TCFD Hub website. The recommendations are adoptable by all organizations with public debt or equity in G20 jurisdictions for use in mainstream financial filings.

Recommendations

The report offers recommendations to companies that want to improve climate-related risk reporting to investors:

• Commit to the complete use of sustainability reporting standards. The GRI standards are now part and parcel of many company disclosures. Companies can use the GRI as a stepping stone, but also look to other relevant disclosure frameworks that can better focus the information they must disclose.
• Disclose the impacts of governance systems for sustainability. Companies have systems of governance that prioritize sustainability issues, but fail to connect these systems to financial impacts and subsequent business performance. Companies should provide relevant disclosures to bridge the gap.
• Externally assure material sustainability disclosures. When companies are able to provide robust external assurance that match the level of rigor applied to financial disclosures, they signal to investors that they are taking a mature approach to sustainability disclosures, and that they are, in fact, “investor ready.”