Companies struggling to manage reporting on climate risks, says report

Businesses are finding it hard to manage reporting on climate risks and need to take urgent steps to meet the expectations of regulators as well as investors, according to a report.

Leading consultancy EY's report covered over 1,100 organisations across 42 countries, including India, and focussed on efforts made by them to publish their climate-related risks and opportunities based on the recommendations set by the Task Force on Climate-related Financial Disclosures (TCFD).

The TCFD was established to improve and increase reporting of climate-related financial information. The scores of companies are based on the number of recommended disclosures that they make (coverage) and the extent or detail of each disclosure (quality).

The EY Global Climate Risk Disclosure Barometer 2021 also showed that coverage and quality of climate-related disclosures remain below global averages in India.

As per the report, only half of companies examined worldwide make all recommended disclosures and therefore have full coverage, and on an average, the coverage was 70 per cent.

"Companies based in India presented 28 per cent on quality disclosure and 49 per cent coverage. Only 3 per cent of global companies reviewed meet the highest levels of quality and the average quality score is 42 per cent," EY said in a release on Sunday.

Among others, the number of Indian companies responding to disclosure platforms such as carbon disclosure project is on the rise. In the coming year, greater TCFD reporting is expected, driven by pressure from financiers, investors and customers, it added.

In November last year, 24 Indian companies signed a pledge to work with the government toward achieving the 2015 United Nations Paris Climate Change Conference (Paris Agreement) goals.

"Businesses around the world are struggling to manage the reporting of climate risks and should consider taking urgent action in order to meet the requirements and expectations of regulators and investors," it noted.

Chaitanya Kalia, Partner and National Leader, Climate Change and Sustainability Services (CCaSS) at EY India, said the pandemic has spurred the importance of climate change and the gravity of climate crisis which go beyond an organisation's own footprint, requiring more complex data management, analysis and forecasting.

Indian organisations are making progress on climate risk disclosures, and Sebi's business responsibility and sustainability reporting norms designed to be mandatory from FY23 onwards will further help investors identify firms' business sustainability risks, Kalia added.

Globally, the report said that only 41 per cent of the organisations reviewed have disclosed that they have conducted crucial scenario analysis, which is also a TCFD recommendation, to examine the likely scale and timings of particular risks and prepare for the worst-case outcomes.

Further, just 15 per cent of the businesses feature climate change in their financial statements, suggesting that they lack robust data or that they have not yet worked through the likely impact on the bottom, the report added.