When the Task Force on Climate-Related Financial Disclosures (TCFD) released the final recommendations in 2017, one of the main expectations was that the nature of climate reporting would evolve with time. True to their expectations, the focus on climate-related risk reporting has changed, improving with time to align with shifting stakeholder and regulation requirements. Now, more jurisdictions are focused on how to harmonize greenhouse gas accounting for a consistent measure of their emissions.
At first, the reporting took a voluntary model, with large organizations setting the pace, but the landscape is shifting as the benefits of environmental, social, and governance (ESG) reporting become clearer.
Stock markets, governments, and individual regulatory authorities are all focused on pushing for faster adoption of financial and climate reporting in companies.
The EU has already passed several legislations, such as the Taxonomy laws, while the UK and New Zealand have indicated they will make TCFD reporting mandatory by 2025. So, no matter the size of your organization, climate risk reporting is crucial, but how do you go about it? Here is a comprehensive guide on the best way to go about sustainability and carbon disclosures..
What is Climate Risk Reporting?
Climate-related risks are the potential effects that climate change has on a company or business. It is a broad aspect, touching on different areas of company operations, such as financial stability and production. The reporting further highlights the key efforts taken by an organization to help address climate change. For example, what is your carbon footprint?
Climate risk reporting can be a completely separate undertaking or part of your entire environmental, social and governance (ESG) sustainability reporting process. During the recent COP26 meeting held in Glasgow in 2020, the main focus was to help governments accelerate focus and regulations on climate change. Now, more states require companies to target zero carbon emissions by 2050.
Climate-related risks that investors and other stakeholders want to see can be broken down into two main groups: physical risks and transition risks.
- Physical risks: These are risks that arise from direct changes in the global weather patterns. For example, does your company incur risks because a part of the raw materials is hard to get because of global warming? A company in the hospitality industry might be reporting disclosures about reduced profits as visitors opt away because of loss of biodiversity. What will the future look like?
- Transition risks: These risks arise from changes being implemented because of new legislation and policies. Most of these policies are geared towards building a carbon-free economy. Do you know how to calculate carbon emissions?
As you can see, the risks pose a huge threat to companies and generations not just now but also in the future. The aim is to bring the focus on sustainability into the highest level of decision-making and make it a major agenda.
That is one of the best ways to drive sustainability and build momentum for change and success.
Climate Risk Reporting Principles
Once you conceptualize what climate risks are, it is time to get down to work. The first step is internalizing the reporting principles. These are disclosure guidelines meant to ensure that all the reporting entities follow the same path. They also aim to reduce the risk of greenwashing. The main principles of climate reporting include:
- Disclosures Should Represent Relevant Information
There are so many things that a company can report on when it comes to climate risks, but it should focus on the disclosure of the most relevant information. It is important to start by carrying a comprehensive materiality assessment to determine the reporting topics to include in the report. All about SBTI on this article.
- The Reporting should Be Clear and Easy to Understand
The primary target when preparing climate risk reports is the stakeholders. Therefore, the report should be clear and easy to understand. This means that stakeholders should be able to capture and verify the information provided in the report.
If you indicate that your company managed to cut down carbon emissions by 50%, make the information verifiable in the report. For example, did the company install new machinery or adopt a sustainable form of energy?
- Reporting should be Consistent Over Time
As we have indicated, the target of climate risk reporting is to help improve the planet, and this can only be possible through progressive improvement. This is why your reporting must be consistent, demonstrating that your short-term achievements are helping the company to move towards the long-term sustainability objectives.
If you target to cut down emissions by 40% in the next four years, the activities in that duration should be cumulative. For example, your investors will be convinced by a continuum of actions, such as staff training on ESG matters, changing a section of the company (such as lighting and office computers) to new energy, regular machinery maintenance, and installation of new machines.
- Comparable
The primary reason why stakeholders, such as investors and customers, want to see your climate risk reports is to compare the company with what others have.
Therefore, you need to prepare the report in a way that every reader can understand the current sustainability situation and company efforts.
The report should also capture the recommendations for the future because investors also want to compare different companies’ financial futures. They want to imagine the company’s sustainability impacts and whether it will have significant financial impacts.
Climate Risk Reporting: Does it Change the Way Your Company Operates?
The whole idea of climate-risk reporting is not to introduce radical changes but instill a new form of responsibility where your company (from top management to junior staff) feels part and actively participates in improving the planet. When you take the time to think about the climate risks and consider different scenarios, it becomes easy to build a resilient and sustainable future for companies, communities and our planet.
ESG and climate reporting might be simply getting started, but we are already racing fast. For example, over 90% of companies on the S&P 500 index are already reporting on their impacts on climate. Here are the recommended approaches to climate risk reporting:
- Look at climate risks, focus, and strategies from the long-term perspectives.
- Consider risk management one of the main functions of your company as opposed to a cost that can be foregone.
- Model different scenarios based on historical data to define the targeted strategy.
- Bring on board a professional to help break down the complexities of climate risk reporting.
- Focus on the short-term targets that interweave well to deliver the long-term mission for the company. The long-term mission should be in line with the company goals, relevant legislation and emerging policy realities.
How Diginex can Help with Climate Risk Reporting
Climate risk reporting is an emerging area, and many companies find it pretty complex. Now that new laws are being passed to help accelerate the benefits of sustainability, the entire process can be even more complex.
For companies getting started with the reporting process for the first time, thoughts of costs, timeframe, and data security can further fog the idea. Well, what you need is a helping hand, and Diginex.com is here to provide guidance.
Experts at Diginex.com can help you to carry out a comprehensive review of your climate risks and opportunities in the entire value chain. They will make you understand the regulatory environment and craft ways of optimizing the resultant benefits. Diginex.com can also:
- Provide you with the best software for climate risk reporting to make the process cheaper, secure, and convenient.
- Train your staff on climate risk reporting to build capacity for sustainability.
- Carrying out materiality assessment and crafting the right strategy for compliance.
- Strategic risk advice on building a good climate change narrative for your stakeholders.
Climate change is a monster that spares no one, and corporations have a bigger role in addressing it through sustainability and positive change. With Diginex.com, you will be able to focus on the entire concept of sustainability to help make the globe, our only planet, the best place to live in. You cannot be left behind or relent in this crucial journey because the world is looking to you. Talk to our experts today for help!
