Reporting on climate risks and emissions is becoming the norm for many organisations. Investors want it. Industry initiatives and standard setters expect it. And governments, to some extent, have made it a legal requirement. This briefing explains how we expect the reporting landscape to change from a global perspective following recent developments such as the International Sustainability Standards Board’s (ISSB) new sustainability disclosures.
For financial institutions and corporations, reporting on climate-related risks and opportunities has either become a legal requirement or, at the very least, expected best practice.
With businesses expanding globally, supply chains spanning continents, and investors eyeing opportunities on an international scale, consistency in climate reporting is paramount. Global reporting frameworks make comparing climate disclosures easier for investors, regulators and other stakeholders.
What is climate reporting, and why does it matter?
Climate reporting focuses on two sides of the same coin: 1) understanding the company’s impact on the climate, and 2) the consequences of climate change on the company itself.
Understanding this relationship is critical for businesses to navigate sustainability challenges. It also presents an avenue for companies to proactively identify strategies to mitigate risks and leverage opportunities associated with transitioning to Net Zero.
Climate reporting increases transparency on the consequences a business faces due to its climate-related risks. It encourages corporate climate action as businesses assess their operations’ climate and financial impact while driving investment towards more climate-resilient businesses.
Robust climate reporting covers emissions reporting, climate risk assessments, target setting, and the disclosure of climate mitigation strategies. If done correctly, it presents an opportunity for companies and financial institutions to gain competitive advantages, such as:
- Improve the resilience of their business models and strategies.
- Identify opportunities to futureproof their business by taking more targeted climate action.
- Capitalise on opportunities that the transition to a cleaner, more sustainable Net Zero future presents.
- Ensure companies take responsibility for their impact on the climate.
Access to international financing will increasingly hinge on adherence to global climate reporting. Businesses and financial institutions that want to attract global capital and target investors in a global market must adopt international standards – regardless of whether it is a requirement in their home country.
As a continent, Africa is particularly exposed to the acute consequences of climate change. It makes understanding and assessing the transition risks and opportunities all the more important from a social, environmental and economic point of view. This is especially important for export-orientated economies, which will be impacted if organisations don’t act.
As we help Latin American companies see the financial value they can lose or win as a result of climate risks, they are able to act most efficiently to mitigate risks and align their reporting practices to that of demanding markets in North America and Europe, where TCFD-aligned reporting is the norm.
Sustainability reporting plays a pivotal role in driving climate action. It encourages organisations to examine sustainability-related concerns in the context of their business operations and, in some cases, from a financial perspective. Businesses that turn TCFD-aligned reporting into an advantage will gain a clear picture of the impact of climate change on their business strategies and turn to more sustainable alternatives to build more resilient business strategies.
Many Chinese companies have disclosed their climate actions based on the TCFD framework in their ESG reports. While there is some hesitance from companies around sharing data, we are seeing more clients place importance on climate reporting. This is because managing climate risks and opportunities is crucial for Chinese corporations to go beyond compliance and futureproof their businesses.
What are the key frameworks, regulations and standards?
One of the most recognised climate reporting methodologies is the Task Force on Climate-Related Financial Disclosures (TCFD) framework. It was created to provide a standard methodology on how companies can assess climate-related risks and opportunities. TCFD forms the basis of other well-known disclosure standards and regulations, including CDP, EU regulation, and the recently launched sustainability-related disclosure standards by the ISSB.
In 2023, the ISSB, which is part of the International Financial Reporting Standards (IFRS) Foundation, published its inaugural standards on sustainability-related disclosures: IFRS 1 and 2. The standards aim to create a global baseline for sustainability reporting and will allow organisations to report on these matters in a transparent and comparable way. The ISSB standard has been constructed by drawing upon existing frameworks, including the TCFD recommendations. The ISSB standards will come into effect on 1 January 2024. It is then up to countries to decide whether to adopt these standards.
The Transition Plan Taskforce (TPT) has launched its Disclosure Framework and Implementation Guidance. These will steer companies toward creating and communicating their Net Zero transition plans. This framework seeks to equip businesses with the knowledge needed to disclose their transition plans.
The TCFD forms the basis of climate risk related areas of other disclosure frameworks and other regulations.
A global overview
Though reporting climate-related risks and opportunities has to-date been voluntary in most jurisdictions, this is changing. Droughts, floods, hurricanes, and the wider effects of climate change are unfolding in front of us. It makes business riskier than ever. At the same time, investors and customers are beginning to monitor a business's influence on the climate, putting growing pressure on businesses to act. To help businesses and financial institutions navigate this space, here is a snapshot of the current regulatory landscape and upcoming changes across countries.
The new standards by the ISSB will soon come into play and are expected to be adopted by many jurisdictions across the world. This means that companies and financial institutions will likely have to report in line with those requirements.
Climate risks and opportunities in Africa can be complex and unexpected. Businesses operating in the region should engage with their stakeholders and incorporate local nuances to build resilience to physical and financial climate risks.
Quantifying and assessing climate-related risks and opportunities is an emerging challenge for many Latin American companies. The relevance of this practice will likely increase in the coming years for reasons beyond regulation. Companies that understand the critical carbon hotspots along their value chain and know the potential financial implications of climate-related risks and opportunities, can actively establish mitigation strategies, that somehow, boost innovation, promote cooperation and maintain competitiveness.
As a region that is highly vulnerable to climate change, investors and stakeholders across Southeast Asia show growing interest in understanding the climate risks and opportunities of individual organisations. More importantly they want to see the transition and resilience plans organisations are putting in place to operate in the future. This will grow in importance as mandatory climate disclosures in line with standards like ISSB are expected to become a requirement.
Only a small percentage of China’s businesses and financial institutions have completed their climate risks reporting. Those that have, will have focused on the qualitative aspects as quantitative assessments such as the financial implications of climate risks are still rare. However, this will change soon. ISSB standards are becoming more accepted and even mandatory while disclosure frameworks such as CDP are also aligning with ISSB. As such, Chinese companies – especially those that are listed in Hong Kong market or plan to disclose their performance to the CDP – are paying close attention as they prepare to enhance their existing TCFD work. Organisations must build the skills, capacities and tools to conduct their climate reporting.
EU authorities, with the UK not far behind, have taken a proactive approach to climate reporting and disclosure. Policy and regulations have been pursued more aggressively than other parts of the world, putting down a real marker for companies to align to and a best practice example for other jurisdictions to follow.
How we can help
In today’s world, organisations operate internationally. Recognising this, we have climate risk and reporting experts across Latin America, Europe, Africa and Asia. This means we can give you a close overview of the reporting requirements across the regions in which you operate.
Climate reporting is part of a wider journey on climate action. Understanding your risks and opportunities is a good starting point for planning your transition. Building upon our expertise in reducing emissions, we can help you gain the insights to plan your transition. As part of this, we model different climate scenarios and sustainability initiatives to determine financial sensitivities, dependencies and potential new revenue streams.
From this, we can help you set carbon reduction targets to minimise your climate impact and assess how changes in business models, such as a recommerce model, can help address your climate risks.
Integrating TCFD and Net Zero into Dr. Martens’ wider sustainability strategy
We partnered with Dr. Martens to pinpoint major emission sources and supported the global footwear brand with its climate reporting. As part of this, we identified climate-related risks and assessed commercial opportunities for reducing emissions. Find out more about this work and our analysis of a recommerce model.Find out more
Transition planning: how to assess your climate risks and opportunities
Catch up on our recent webinar on identifying climate risks and opportunities, their importance for a company’s business value and best practices.Catch-up on our webinar