6 ways to turn climate disclosures into meaningful action

The Asia-Pacific findings in the fourth EY Global Climate Risk Disclosure Barometer reflect the region’s fragmented approach to mandatory climate disclosures. On average, the Barometer finds Asia-Pacific companies behind on both quality and coverage of disclosures when compared to global peers. But these averages mask a more complex and divergent reality.

Drill down and we find Japan, South Korea and Oceania are actually ahead of global averages. In fact, Japan is second in the world behind the UK for both coverage and quality, reflecting its advanced climate disclosure regulations. In contrast, markets such as Greater China and Southeast Asia lag countries with mandatory reporting, despite their overall increase in performance.

However, my biggest takeout from the report is this:

No matter how much climate disclosure has improved, global temperatures continue to rise. The world remains far from where we need to be, in terms of allocating capital to the process of decarbonisation.

To be clear, I’m not blaming organisations for falling behind in the transition to a zero-carbon economy.

Decarbonisation is a big, complex and challenging process. Climate disclosure reporting requires new capabilities, including collecting and analyzing detailed emissions data up and down their supply chains. Employees must be trained in the technical aspects of reporting and the importance of decarbonisation must be roundly embraced from the C-suite to the front line.

There’s a lot to do in precious little time. And it’s easy for companies to get so caught up in the detail, complexity and ever-shifting reporting environment that they lose sight of the bigger picture.

Reporting should focus your organisation on what matters

My steer is to keep bringing your back to the idea that decarbonisation is the result of the real-world actions your company takes, not the information you disclose. But you can use climate disclosures as a means of holding your organisation to account – to keep everyone focused on how you are reducing your carbon organisation footprint.

We recommend:

1.??????Setting meaningful targets: Do your targets focus on materiality, consider your entire value chain, and look at different climate scenarios? Does your organisation have a genuine appreciation of its own capability to decarbonise not only its own operations, but its supply chain as well? What process are you following to achieve your emissions targets and what will you do if you miss them?

2.??????Assessing strategy: Does your company continually ask itself whether its decarbonisation strategy is comprehensive and credible, whether it covers the most important issues and aligns with the Paris Agreement targets? Do you have a capital allocation plan to provide confidence that investment is channelled toward the right projects?

3.??????Using scenario analysis: Are you stress-testing your current strategy to understand which scenarios could lead to your business becoming unprofitable? Are you staying close to the science and the policy environment to understand the latest climate-related trends?

4.??????Exploring the opportunity: Do you understand the scale of the opportunity transformation presents? What are your options for transforming your business, while reducing your emissions footprint?

5.??????Collaborating to succeed: Is your organisation innovating with other organisations and national authorities? Is finance set up to be directed to the projects most likely to drive change? Are your reporting capabilities informing policy and decision-making, at both an organisational and a national level?

6.??????Tracking performance in real time: Are you getting ready for greater investor scrutiny by embedding real-time climate performance tracking into your risk management practices and operations?

Your climate disclosure should tell a sharp, focused and integrated story about the financial risks and opportunities that climate change presents to your business – and (critically) how you are responding to that with a coherent decarbonisation strategy.

Disclosure for the sake of compliance is not enough. To accelerate decarbonisation, we need companies to be more transparent about the process to achieve their emissions targets, the investments being made and what actions are planned if they miss those targets. This is when disclosure becomes a means to an increasingly important end.

The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.