Companies urged to up game on climate disclosure
Companies need to step up their reporting on climate-related issues, according to a new report from the UK’s Financial Reporting Council (FRC).
The 86-page document, released this week, sets out investor expectations for disclosures about climate change and suggests a range of questions companies can ask themselves to improve their reporting.
The report recommends that companies make use of the framework developed by the Task Force on Climate-related Financial Disclosures (TCFD) when making disclosures. This framework, created in 2017, bases disclosure around four areas: governance, strategy, risk management and metrics & targets.
‘Investors are rightly demanding more information and greater transparency from companies on the challenges posed by climate change,’ says Sir Jon Thompson, CEO of the FRC, in a statement.
‘As societal and investor expectations evolve alongside the regulatory environment, it is clear companies need to rapidly increase their transparency and improve their reporting to meet this demand.’
The report suggests a list of questions companies can pose as they implement the TCFD framework. For example, on the topic of metrics & targets, it asks: ‘What information is most relevant to monitoring and managing the impacts of climate-related issues? How were these identified and how do they link to the strategy and business model?’
As companies try to understand the long-term impact climate change may have on their business, investor relations will need to work with other departments on scenario planning, notes the report.
‘This involves a fulsome assessment of the future and the company’s key drivers in different contexts, including different climate scenarios,’ write the authors. ‘Such an analysis requires a great deal of co-ordination across many areas, including strategy, finance, risk, reporting, company secretarial, sustainability and investor relations, plus the management and board.’
In the report, there are various examples of how companies are starting to report on climate-related topics. For example, it details how DS Smith, the FTSE 100-listed packaging business, is setting out a roadmap for its climate reporting. The company, through its annual report and sustainability report, explains how many of the TCFD recommendations it is meeting and how it expects its climate reporting to develop over the following year.
The report comes amid renewed pressure on ExxonMobil, one of the world’s biggest oil and gas companies, over its reporting on climate change. The state of New York is taking the company to court over its disclosures about the potential cost of climate change to its business.
Prosecutors claim the company kept two separate accounts covering the potential impact of climate regulation and disclosed only the more favorable figures to investors. ExxonMobil has denied it misled investors, arguing it provided sufficient information, and says the claims are politically motivated.