How to Close the Climate Disclosure Disconnect

by | Oct 19, 2022 | GLYNTBlog

EY’s sustainability team just released a new survey of 1500 companies in 47 countries.
A short table succinctly summarizes the results:

The Disconnect between Climate Disclosure Reporting and Credible Reduction Plans

Summary of EY’s survey of 1500 companies, October 2022

Sector
Climate Disclosures that Include Risk Exposure
Compliance with TCFD Disclosure Requirements
Quantitative Financial Impact Disclosed*
Banks 77% 39% 8%
Financial Asset Owners & Managers 72% 35% 15%
Insurance 90% 48% 20%
Agriculture 76% 37% 15%
Utilities 97% 51% 17%

Source: EY, Global Climate Risk Barometer, 2022
* GLYNT Estimate from the survey data

As the table shows, for the industries investors will be most impacted by climate change – the industries with the highest value at risk – the rate of reporting on climate disclosures is high, but the quality of the analysis is low. There is a large disconnect between reporting and the quantitative disclosures that drive credibility.

But, providing credible carbon reduction plans is key to standing out from peers and maintaining valuations as we head into our climate-challenged future. Closing the disconnect from reporting to action is imperative, for both the planet and long-term enterprise value. 

The good news is that the disclosure disconnect can be closed with two straightforward steps:

1. Accurate, Actual Data

Climate risk hits physical locations and business models. For example, suppose models show that a 1-in-a-100 year flood will miss your distribution center, but hit the local sewage treatment plant.  Your facility is shut down until the plant is repaired.  Fine-grained data by location and over long risk cycles is needed. 

Or suppose that the top team wants to reduce carbon emissions by 30% to comply with vendor mandates set by key customers.  This requires accurate actual data on current emissions, nature of the projects that will reduce emissions, and the projected emissions outcome. Many companies still use estimated emissions in climate disclosures, and shifting to actual data will give the reduction plans the credibility investors require.

2. Integrated Financial-Sustainability Reporting

One of the strongest signals of a credible carbon reduction plan is the cost of the plan. When accurate, actual sustainability data flows into current accounting and financial software systems, then tradeoffs can be made between opex, capex and emissions reductions. Credibility is built by showing investors the capital efficient reduction plan, backed by disclosing the financial statement impact and accurate actual emissions data. Earlier this year, Harvard Business Review published “Accounting for Climate Change”, by Bob Kaplan and Karthik Ramanna which lays the foundation for using financial accounting principles in climate disclosures. GLYNT has been extending this framework, and we have shown how standard financial accounting processes can include sustainability data, enabling integrated reporting. The EY survey has clearly defined the current state of affairs: strong corporate intent, but a significant disconnect between reporting and credible action. Fortunately, the next steps are clear. And for corporate valuations, and the planet, the time is now.
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