Investors using companies' climate change risk disclosures to manage investment decisions and portfolio risk want more changes to understand how the risk information translates into action.
The latest report by the Investor Group on Climate Change (IGCC), Full Disclosure: Improving corporate reporting on climate risk, found that improvements are needed in climate risk disclosure to make it more useful for risk assessment and portfolio management.
Since the Task Force on Climate-related Financial Disclosure released its recommendations in 2017, there has been increased reporting on climate-related risks however gaps remain between the information provided and that required by investors.
IGCC surveyed 50 investors from 22 organisations in Australia and New Zealand with more than $1.1 trillion in collective funds under management.
The investors are calling for companies to discuss how climate change risk informs strategy and planning, evidence the board understands climate-related risks and assessment of the impact of actions taken to manage these risks.
Furthermore, investors want companies to provide data evidence for claims they make about climate-related risks such as evidence of relevant expertise in executives and board, discussion of input and assumptions made in scenario analysis and disclosure of the assumptions underpinning a business model.
Australian Ethical head of ethics research Stuart Palmer said: "Improved disclosure is needed for investors to manage climate change risk in their portfolios and make accurate assessments of the performance and prospects of companies."
"Critically, investors want companies to show not just that climate risk is being assessed but how this is informing and changing their strategies and decision-making from board governance to capital expenditure to future business opportunities."
Just over half the respondents represented asset/fund managers and a third represented institutional investors.
The majority consider climate change a financial risk in investment analysis and around 40% use climate disclosures on a daily or weekly basis.
Nearly all investors (84%) use disclosures as a basis for engagement with companies, followed by using them as a part of environmental, social and governance integration (76%).
IGCC chief executive Emma Herd said: "Around the world different jurisdictions are working out how to ensure consistent, clear and investable climate risk disclosure that translates to action in capital markets."
"Some markets are using voluntary guidance developed by regulators. Others, like New Zealand and Canada, are moving to mandatory disclosure regimes, something which should now be considered in Australia given the systemic risks climate change poses to our economy."
Links
- Investor Group on Climate Change - Full Disclosure: Improving Corporate Reporting On Climate Risk (pdf)
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