Published on 13 December 2018


Companies vulnerable to climate change risks yet to reflect them in their business models

While climate negotiations resume at COP24 in Poland to implement the Paris Agreement objectives, a report highlights the lack of consideration companies give to climate risks. This is especially true for so-called transition risks, or risks related to forthcoming climate regulations.

While nearly 80% of companies identify at least one environmental or climate change risk, 80% do not mention a specific strategy to reduce such risks.

Climate change is something all major companies discuss, but not nearly as much as they should, according to the latest report by the Climate Disclosure Standard Board and the CDP (1). Together, they scrutinized the annual reports of the 80 largest European listed companies to assess how companies report on risks and actions related to climate change.

The results showed that many companies neglect to anticipate these risks. Only 44% of companies explained how their business model is affected by climate change, or more broadly, by environmental issues.

Despite nearly 80% of companies identifying at least one environmental or climate risk, eight out of ten companies do not mention a specific strategy to anticipate these risks. Thus, only 41% of companies reported on transition risks related to future regulations and policies, or those that could have a significant effect on their business, according to the report.

Clarifying European regulations

These statistics are troublesome when considering the regulations put in place at national and European levels, such as the European Directive on extra-financial performance, or the recommendations developed by the TCFD international working group that focuses on transparency of financial risks related to climate.

Companies that are subject to transparency obligations due to regulations are nevertheless ahead of their counterparts. Thus, French companies subject to one of the most advanced climate regulations with Article 173 of the Energy Transition Act, are leaders in the United Kingdom. At minimum, all French companies indicate their current level of greenhouse gas emissions, compared to 81% of European companies and 56% of German companies!

For Mardi Mcbrien, General Manager of the Climate Disclosure Standards Board, the conclusion is clear: it is time to "clarify and strengthen the NFR (Non-Financial Reporting) Directive by specifying its requirements". She added, "climate and environmental information is material for an understanding of these large businesses and must be presented to investors in a consistent and comparable way".

Béatrice Héraud @beatriceheraud

(1) The "First steps" report is available online. It focuses on 80 European companies, across 12 countries, that represent €3.7 trillion in market capitalisation.

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