How will understanding climate risk move you from ambition to action?

The fifth EY Climate Risk Barometer shows an increase in companies reporting on climate but falling short on carbon ambitions.

From assessing 1,500 companies’ climate-related disclosures in over 51 countries worldwide, EY’s Climate Risk Barometer reveals incremental coverage and quality increases in line with TCFD’s 11 recommendations. Multi-sector quality improvements, notably in energy, real estate, mining, agriculture, materials and building, and financial institutions, are attributed to stakeholder pressure on businesses in carbon-intensive sectors to disclose their decarbonization plans and progress. However, despite TCFD recommendations being 7 years old, the overall year-on-year score has improved from 44% to only 50% in disclosure quality. Moreover, while 77% of assessed companies have conducted analyses on risk, only 68% have done so on opportunities.

The laggard improvement rate raises concerns as research identifies ISSB preparedness, including IFRS S2 Climate-related Disclosures (which builds upon the TCFD framework), as one of three core elements shaping the reporting landscape for the next few years. Another change driver is how companies will design and implement effective transition plans that account for real-world scenarios and resources. Thirdly, companies will face heightened demand to reflect their climate-related risks in financial statements.

The report concludes with three actions for companies to take to manage reporting shifts, including 1) shifting to a mindset from burden to action, using disclosure to drive behaviour, 2) mastering data to drive action and reduce emissions, and 3) elevating the discussion to address climate data and impact at board level to encompass people, operations, value chain, and technology for a holistic business approach. By adopting these actions, companies are better positioned for evolving regulatory and market demands

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