Have you been to a climate conference recently? If so, it won’t have taken you long to have overheard a discussion about climate-related disclosures.
These disclosures were supposed to move the dial on climate action. The original promise was that an increase in climate-related disclosures would encourage companies, financial institutions, and public bodies to better report their climate impact – and incentivise them to take tangible steps to improve these metrics and decrease their climate risk.
But, looking at the evidence in the cold light of day, there is very little evidence that this is taking place. In fact, it’s time to recognise that these efforts are not moving the dial as much as some people may have hoped. And, faced with this stark reality, we need to urgently reallocate that spending to climate initiatives that have the potential for much bigger, deeper, and catalytic impact.
A huge amount of time, energy, and money is being invested in climate-related disclosures. Most recently, the Taskforce on Nature-related Financial Disclosures (TNFD) announced that more than 500 of the world’s biggest financial institutions had signed up to their voluntary best-practice guidelines. This is no mean feat – and demonstrates just how much company time is being directed to these initiatives.
And it’s not just private sector money. It’s government resource too. The US, EU, New Zealand, Hong Kong, Japan, and Singapore have all introduced their own separate climate-related disclosure frameworks. Getting these frameworks to completion won’t have been easy – and will have involved countless people, consultations, and rounds of legislative drafting.
So, what is the ultimate cost? It’s difficult to put a firm number on it, but it’s not small beer. A recent survey found that, on average, corporate issuers were spending around $533,000 per year on climate-related disclosures in the US alone. This aligns with the SEC’s own figures, which estimates that the approximate first-year cost of climate-related disclosures in the US at about $640,000 for big businesses and $490,000 for smaller firms.
When you factor in the thousands of companies caught by these regulations spanning multiple jurisdictions, it seems fair to assume that the ultimate cost will run to billions across the global economy – every year. And that’s without accounting for the cost to governments of overseeing compliance.
So, given the huge sums being invested, are we sure that this investment is truly moving the dial? Sadly not.
In my experience, when you are trying to overcome a huge challenge, like the climate crisis, you need to focus your limited resources on those things that make the biggest impact. In my own parlance, I call these pressure points. These are points of leverage: if you can influence these underlying root causes, it will lead to an outsized impact on the ultimate problem that you’re trying to solve.
Sadly, it’s often the case that these pressure points are deeply baked into the challenge. They are usually, but not always, systemic in some way. They might be difficult to identify. They are probably complicated and multi-dimensional. And they could well be self-perpetuating. But despite being difficult to tackle, there is a positive flipside: these pressure points also pare down an apparently insurmountable challenge into specific, tangible points of focus.
If you can find these pressure points and target your limited resources on just influencing them, you can maximise your impact. They give you a powerful, tried-and-tested way to optimise your investment and, even more than that, deliver maximum Impact per Dollar. And faced with the urgent challenge of the climate crisis, we need to make sure that we’re investing our limited resources where they will make the most difference.
But increasing the number of climate-related disclosures does not seem to clearly influence any underlying pressure point in a big way. If they did, we would expect the recent surge in climate-based reporting to lead to game-changing outputs in climate results – or we would hope, at the very least, to see a noticeable, substantial shift in some ultimate climate metrics.
We haven’t seen that. In fact, according to the latest EY Climate Barometer, despite the number of companies covered by climate-related disclosures increasing to 94% over the last six years, a mere 19% of those same companies have adopted plans to mitigate those risks. An increase in climate-related disclosures is not leading to concrete, practical climate action.
Now, we need to be careful here: this is not an argument against disclosures having any value at all. It is perfectly possible that these disclosures are moving the dial – but in a smaller way than might have been hoped. If that’s the case, we can still appreciate their value but, ultimately, still conclude that we need to focus our investment elsewhere: given the overwhelming urgency of climate change, we need to double down on allocating resource where it will have the largest impact.
In other words, climate-related disclosures are a necessary but insufficient condition for delivering strong results on climate change. They need to be blended with different, potentially interconnected, interventions to really influence the underlying pressure points. But, regardless of reasons for more disclosures not moving the dial, we need to recognise the reality as it is: we are spending money, time, and resource on something that is not working.
The correct response is to stop. Billions are being spent annually. That resource would be better invested in either undertaking further research to better understand the pressure points underlying climate change – or where that raw information already exists, directing our limited resources into making laser-focused interventions that maximise our impact.
For example, there is already strong evidence about the root drivers of climate change. According to UN data, burning fossil fuels accounts for 75% of greenhouse gas emissions, with most of that coming from the energy sector – a number that has stayed persistently high because of the porous walls between politics and the energy industry. In 2022, fossil fuel subsidies reached $7 trillion, a $2 trillion increase on 2020 driven by higher energy prices. If we want to solve climate change, tackling this central problem would seem to be a good place to start.
The need to move the dial on the climate crisis is urgent. We are facing the genuine possibility of a true extinction-level event in the coming years. There is no time to beat around the bush. We need to focus our resource where it really matters. And that is not in more climate disclosures.
Gilad Tanay is founder and Chairperson of ERI Institute, a research and consultancy firm specialising in leveraging best-in-class data science to drive social impact. Prior to founding ERI, he co-founded and was the US director of Academics Stand Against Poverty (ASAP), an international NGO concerned with alleviating global poverty. He also served as a fellow and lecturer at the Global Justice Program at Yale University.
