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Think strategically to improve climate-related risk reporting

Companies are identifying climate-related risks and opportunities but they are not taking strategic action to tackle those risks, according to a report by climate by the CDP (formerly the Carbon Disclosure Project) and the Climate Disclosure Standards Board (CDSB).

The report is based on a study of the disclosures from 1,681 companies across 14 countries and 11 sectors, with data gathered by the CDP Questionnaire in 2017. The report states: “While a majority of companies recognize in one form or another the physical and transition risks and opportunities that climate change will lead to, there are clear differences in the way they are integrating them in their wider governance and risk management processes.” The research identifies three common gaps where companies can embed climate change into their strategies:

Think long-term

Companies are considering the financial risks and opportunities that climate change creates in the short term but do not currently disclose an alignment with the long-term public and private action that is required to meet the Paris Agreement goals.

Incentives for boards

Board members have oversight of climate-related matters in nine out of 10 companies, but few face direct consequences for lack of progress towards climate-related targets and only one in 10 boards has monetary or non-monetary incentives linked to progress against climate-related targets. Companies in Canada (2%) and the US (4%) having the fewest.

Use carbon pricing

The TCFD recommends setting an internal price on carbon. Carbon pricing is quickly becoming a widely-used tool, with 21 per cent of companies currently using carbon pricing and an additional 16% saying they will do so in the next two years.

CTMfile take: The CDP-CDSB report makes interesting reading, with useful recommended disclosures for companies to improve their climate-related financial reporting.

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