The FINANCIAL -- Almost three quarters (72 percent) of large and mid-cap companies worldwide do not acknowledge the financial risks of climate change in their annual financial reports, according to the KPMG Survey of Corporate Responsibility Reporting 2017 published on October 25.
Of the minority that do acknowledge climate-related risk, less than one in 20 (4 percent) provides investors with analysis of the potential business value at risk.
KPMG’s survey studied annual financial reports and corporate responsibility reports from the top 100 companies by revenue in each of 49 countries: a total of 4,900 companies.
It found only five countries in the world where a majority of the top 100 companies mention climate-related financial risks in their financial reports: Taiwan (88 percent), France (76 percent), South Africa (61 percent), the US (53 percent) and Canada (52 percent). In most cases, disclosure of climate-related risk is either mandatory or encouraged in these countries by the government, stock exchange or financial regulator.
In terms of industries, companies in the Forestry & Paper (44 percent), Chemicals (43 percent), Mining (40 percent) and Oil & Gas sectors (39 percent) have the highest rates of acknowledging climate-related risk in their reporting. They are closely followed by the Automotive (38 percent) and Utilities (38 percent) sectors. Healthcare (14 percent), Transport & Leisure (20 percent) and Retail (23 percent) are the sectors least likely to acknowledge climate risk.
When looking specifically at the world’s 250 largest companies (G250), public acknowledgment of climate-related financial risk is more common but still far from universal. French-based multi-nationals lead with 90 percent acknowledging climate-related risk, followed by majors headquartered in Germany (61 percent) and the UK (60 percent).
Around two thirds of G250 companies in the Retail (67 percent) and Oil & Gas (65 percent) industries acknowledge the risk but only around one third (36 percent) of major Financial Services firms do so. However, the research found only six G250 companies that have informed investors of the potential financial impact of climate risk through quantification or scenario modelling.
KPMG’s Global Head of Sustainability Services, José Luis Blasco, said: “Our survey shows that, even among the world’s largest companies, very few are yet providing investors with adequate indications of value at risk from climate change. Our findings support the need for initiatives like the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) that aim to improve corporate disclosure of climate-related risk.
Pressure on firms to up their game on disclosure is growing by the day. Some investors are already taking a hard line approach to demanding disclosure; some countries are considering regulation to make it mandatory; and some financial regulators have warned that failure to identify and manage climate risk is a breach of a Board’s fiduciary duty. In this context, we encourage firms to move quickly. Those that don’t could very soon start to lose investors and find the cost of capital and insurance cover escalates quickly.”
KPMG’s survey also explored further trends in corporate responsibility reporting including reporting on the UN’s Sustainable Development Goals (SDGs), reporting on human rights and reporting on carbon reduction targets.
Key findings include:
The UN SDGs – a set of 17 global goals to end poverty, protect the planet, and ensure prosperity for all - have resonated strongly with businesses worldwide in less than two years since their launch at the end of 2015. More than one third (39 percent) of the 4,900 reports studied in KPMG’s survey connect companies’ corporate responsibility activities to the SDGs. That proportion rises to over 40 percent (43 percent of reports) when looking specifically at the world’s 250 largest companies (G250).
Around three quarters of company reports (73 percent) across the 49 countries recognize human rights as a corporate responsibility issue the company needs to address. This rises to nine out of ten reports (90 percent) in the G250 group of companies. Companies based in India, the UK and Japan are the most likely to acknowledge the issue of human rights, as are companies in the Mining sector.
Two thirds of reports (67 percent) from the world’s 250 largest companies disclose targets to reduce the company’s carbon emissions. However, the majority of these reports (69 percent) do not align the company’s targets to the climate targets being set by governments, regional authorities (such as the EU) or the UN.
José Luis Blasco said: “It is not only employees, communities and NGOs who take an interest in corporate responsibility and sustainability issues. Investors are also increasingly aware that topics previously considered “non-financial” can have a material impact on a business’s ability to build and protect value both in the short-term and the long-term. Companies therefore need to understand the latest trends in reporting and ensure their own reports meet the expectations of a wide range of stakeholders.”
CR reporting in Romania
The research on Romania’s top 100 companies by revenue (N100) shows a slight increase in the number of companies reporting on sustainability. More specifically, 74 of the N100 disclose sustainability related information – either in a local report or by providing data for a CR Group report – marking a 6 percent increase by comparison with the 2015 edition of the survey.
According to the results of this latest survey which are based on analysis of reports launched in the period 2015-2017, out of the total of 74 companies disclosing sustainability data, 35 report information on their CR practices and performance exclusively via the parent company or within the Group report, 30 subsidiaries of multinationals operating in Romania publish sustainability information on their local website and only 9 Romanian private or state-owned firms publicly communicate this data.
The key findings related to the reporting practices of the 39 companies locally disclosing CR information reveal the following aspects:
The reporting companies have a clear preference for stand-alone reports rather than including non-financial information in their annual financial reports, whilst integrated reporting is not common practice.
8 reports are prepared in line with the GRI Guidelines, 3 listed companies state they have been reporting according to stock exchange guidelines, but none of these reports is assured by a third party.
Although 6 companies make the connection between their CR activity and the SDGs, just 2 of them identify the SDGs relevant to their business.
3 listed companies acknowledge that climate change is a risk for the business. However the potential impact is not quantified.
Out of the 12 companies that acknowledged human rights as a relevant CR for their business, 6 have implemented a human rights policy and one of these policies refers to the UN Guiding Principles on Business and Human Rights.
23 companies reportedly work to improve the environmental, social and governance (ESG) performance of their suppliers and 14 have an ESG supplier code of conduct in place or their standard supplier code of conduct incorporates ESG issues.
7 reports include carbon reduction targets, out of which 4 are connected with global or regional targets (EU targets, Paris Agreement).
Geta Diaconu, Sustainability Advisory Director at KPMG in Romania explains the findings of the research on Romanian N100 CR reporting trends: “The main trigger for the increase in the number of reports since the issuing of the previous survey is the commitment of multinationals with operations across our country towards increased transparency. The effects of the Directive on non-financial reporting have not yet been experienced, and for the moment the market is at the stage of understanding the topic, exploring potential alternatives, tailoring a strategy and training people in this field of activity. Consequently, the number of published reports has not increased significantly.
Hopefully, during the next couple of years – due to regulatory requirements, market pressure and increased awareness– we will notice significant progress in Romania and in the region both in terms of the number and the quality of CR reports. The quality of the information disclosed remains an aspect that Romanian companies could further improve, as the use of internationally recognized reporting guidelines or standards is limited and there is almost no interest in the assurance of the reports”.
Alin Tiplic, Manager, Sustainability Advisory at KPMG in Romania, commented: “Reporting itself is merely an instrument, and therefore to really add value and prepare themselves for the world of tomorrow, businesses should become more connected with and contribute to global initiatives focused on making the economy greener and building sustainable societies. These global trends are becoming more prominent, and are also having an impact on the business environment, so immediate action is required. In this context. Probably a mindset shift is necessary for companies in Romania to make the transition from the financial bottom line to the triple bottom line and truly integrate sustainability into their business DNA.“