Are investors getting what they need from climate risk disclosures?

Author Olivia Kember, Sally Cook

Date March 2021

A landmark report, released last year by the Investor Group on Climate Change (IGCC) and developed by Energetics, provided critical insights for Australian corporates which should inform plans for 2021 financial reports. The work asked institutional investors whether they were extracting sufficient value from climate risk disclosures. Below we revisit the report’s major findings.

The rapid and widespread take-up of TCFD guidance for reporting

More and more companies are reporting their climate-related financial risks using the guidance developed by the Financial Stability Board’s Taskforce for Climate-related Financial Disclosures (TCFD). We have also seen New Zealand, Hong Kong and the United Kingdom mandate climate disclosures, with the Biden administration in the US expected to follow.[1]

However, while adoption of the TCFD framework is growing, are investors getting the insights they need to inform their investment decisions?

To understand the value to investors, the Investor Group on Climate Change (IGCC) which represents institutional investors from across Australia and New Zealand, has released the findings of a survey conducted with over 50 investors from 22 organisations with more than $1.1 trillion in collective funds under management. Titled, Full Disclosure: Improving Corporate Reporting on Climate Risk, the report found that significant improvements are needed to make climate disclosures more useful for decision-making, risk assessment, portfolio management and company engagement.

Feedback from investors

Specifically, investors are seeking disclosures that do the following.

  • Demonstrate board, director and executive level skills and expertise in climate change
  • Report links between climate-related performance and executive remuneration
  • Demonstrate links between risks and opportunities identified and the company’s strategic and organisational response
  • Extend reporting of emissions metrics and targets to scope 3 emissions, where material
  • Report on both transition and physical risks, costs and implications
  • Provide auditing and assurance of results as it becomes more important

Energetics was engaged by the IGCC to develop the survey, assess the findings and extrapolate the insights and recommendations.

You can access the full report Full Disclosure: Improving Corporate Reporting on Climate Risk.

References

[1] McGrath, C: “UK and NZ lead way on mandatory climate risk disclosures” AICD, 20.1.2021.