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Most companies recognize climate risk, few act

Most companies recognize climate risk, few act

Most companies recognize risks posed by climate change to their businesses, but few are acting to address these risks, particularly in North America, according to a new study.

About 83% of surveyed companies acknowledge the physical risks of climate change, while 88% identify policy changes or new regulations as the main risks of transitioning to a low-carbon economy, according to the study published Monday by CDP, formerly the Carbon Disclosure Project, and the Climate Disclosure Standards Board.

But there is a disconnect between where the responsibility sits for overseeing climate-related risks and opportunities and the responsibility for managing them, according to the report. While 82% of companies have board-level oversight of climate-related risks and opportunities, only 12% provide monetary and non-monetary incentives to board members for the management of climate change matters.

“Overall, we see there is a surface level of preparedness from companies globally to have board level oversight of climate risk and opportunity,” Jane Stevensen, CDP’s London-based task force engagement director, said in a statement Monday. “Key drivers are investor action, company reputation and consumer reaction to climate risk. What we are not seeing is increased governance translating into climate change mitigation. 2018 is the year when companies need to step up climate action as we approach a tipping point. Fundamental to this is driving board level engagement with climate risk throughout the organization.”

European companies show significantly higher levels of board oversight than their counterparts in the United States, according to the report. For example, 96% of companies in the United Kingdom delegate board-level oversight responsibility, followed by 94% in both Germany and Japan, the report noted. In contrast, only 66% of companies in the United States have board-level oversight for climate change.

In addition, 29% of companies in Germany provide incentives to the board for management of climate change issues, followed by 25% of the companies in France and 23% in the United Kingdom, according to the report. Canada had the lowest percentage of companies providing such incentives at 2%, followed by 4% in the United States.

“It is now the time to set up clear strategies to tackle companies’ exposure to climate risks and seize new economic opportunities,” Simon Messenger, London-based managing director with the Climate Disclosure Standards Board, said in the statement. “It is also clear that the management of environmental issues can no longer be the sole responsibility of sustainability teams. It needs to be a priority area for companies’ boards to ensure it is truly embedded into their strategic priorities.”

Companies in France, Germany and the United Kingdom are leading the way in disclosing information across three out of the four areas highlighted by the Financial Stability Board’s Task Force on Climate-related Financial Disclosures: governance, risk management, metrics and targets, with strategy being the fourth area. The task force — at the request of the G-20 nations — released a set of recommendations to guide companies in assessing the material risks climate change poses to their operations and develop plans to mitigate these risks in June 2017. The study examined the responses of 1,681 companies across 14 countries and 11 sectors disclosing to CDP in the four areas of disclosure identified by the task force and highlighted whether companies in specific sectors and countries are best prepared to disclose information under those themes.

Although the overall recognition of the physical risks associated with climate change was high at 83% of companies, the type of risk and projected impact varied significantly across the globe, according to the report. The highest recognition of physical risks was seen in India at 92%, with China reporting the lowest recognition of physical risks at 55%, according to the report. In the U.S., 82% of companies recognized the physical risks of climate change.

Overall, 63% of companies stated that changes in customer behavior and/or reputational issues linked to climate change pose a substantive risk, according to the survey, with companies in South Korea leading the way in highlighting reputational risk at 77% and China with the lowest reporting of this risk at 24%. Only 57% of U.S. companies recognized reputational risks associated with climate issues.



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