Climate risk reporting – lessons from leading firms
It’s a sign of the times when experts develop climate risk reporting platforms that assess the vulnerability of a company’s physical sites to 28 climate change hazards. The call to action at last year’s COP26 meeting – hosted by the UK in Glasgow – was to ‘keep 1.5 alive’, which referred to the goal of limiting global warming to a rise of 1.5 degC. But many now believe that target to be out of reach and the world should ready itself for much more severe disruption.
Developed by ecoact – a consultancy firm with more than 300 climate experts – the analytical platform helps companies to better understand what is at stake in climate change. And once confronted by the news, teams can then consider adaption strategies – for example, increasing the size of drainage systems if more severe flooding is forecast. Satellite images can be pulled in to help visualize the surrounding area and pinpoint the most exposed sites.
Risk mapping European firms
It’s not the only sign that tough times could lie ahead. Financial risk mapping conducted by the European Central Bank (ECB), together with the European Systemic Risk Board, considered 1.5 million firms across Europe. Exposure was assessed against six hazards – hurricanes, sea level rise, floods, water stress, heat stress, and wildfires. And one of the big take-home messages was that climate change will be felt unevenly. In the ECB analysis, companies in southern and central European regions could face much larger losses than firms elsewhere in the continent.
What’s more, as the report’s authors are quick to highlight, climate hazards present a compound threat – for example, as the effects of wildfires, heat stress, and water stress add up. It certainly puts a lot on the plate of company leadership teams as they do their best to steer a path through climate change disruption. And one of the brighter notes is that the majority of firms are conscious of the challenges.
Ecoact points out that 70% of the largest listed companies have committed to net-zero. And, as legislation ramps up, firms will come under increased scrutiny to report their progress against climate targets. But the rewards are clear both for the planet at large and business continuity. Plus, reporting makes this knowledge public and encourages firms to be accountable for their actions.
To track progress in climate risk reporting, ecoact’s analysts have compared the performance of the twenty largest listed companies across CAC, DAX, DOW, FTSE, FTSE MIB, and IBEX indexes. The assessment considers four key areas: emissions measurement and reporting; ambition and emissions reduction targets; strategy governance and action plan; and achievements.
In 2022, nearly three quarters of companies have committed to carbon offsetting, compared with just a third of firms in 2021. Examples include Salesforce (added to the Dow Jones Industrial Average in 2020), which – as the report’s authors mention – is planning to sequester 100 gigatons of carbon through conserving, restoring, and growing 1 trillion trees by 2030.
Considering other metrics in the analysis, renewable energy now covers an average of 63% of operations, up from 46% in 2021. But progress in emissions reduction could be stronger, and pledges to ‘build back better’ are not always materializing.
Tracking of Scope 3 emissions – which includes categories such as purchased goods and services, business travel, transportation and distribution – is high, with just 6% of firms failing to report. And there are positives to be found here. As the Carbon Trust points out, Scope 3 emissions data helps firms to identify which suppliers are leaders and which are laggards in terms of their sustainability performance. The numbers also allow companies to flag emissions hotspots and engage with employees on emissions reduction opportunities.
Climate risk reporting
Turning to climate scenario analysis, where firms consider the risks of global warming, 85% of large FTSE companies have engaged in the process. This points to climate disclosure legislation as a driver for change. And some firms (31% of those surveyed) have gone further by implementing an internal price on carbon. Doing so is a surefire way to incentivize emissions reduction and reflects an ambitious posture by companies.
High levels of homeworking and reduced global travel have suppressed greenhouse gas emissions, but as the world opens companies will need to step up efforts to hit climate targets. Looking at average scores by industry in ecoact’s assessment, IT and telecoms as well as internet and data services are leading the way.
“Our findings suggest that, though there is plenty of room for improvement, the IT&T[elecoms] companies in our study rose to the challenge to meet demand without sacrificing their climate strategy; pushing ahead towards netzero even as their businesses grow and evolve,” ecoact’s analysts comment. At the bottom are healthcare and hospitality providers, with electronic components and manufacturing operations also registering low scores.
21 March 2023
21 March 2023