Corporates fall short on ESG, impact disclosures: EY

Despite more companies publishing climate reports, many are falling short of the disclosures required by investors, according to EY.

A new report from the global consultancy found that more than half (51%) of 1,500 companies surveyed worldwide were not conducting any climate-related scenario analyses or were not disclosing results of scenario work.

In addition, less than a third (28%) referenced climate-related issues and data in financial statements.

“Providing better climate-related financial disclosures is an opportunity for investors to ‘walk the talk’ when it comes to driving up the quality of climate reporting,” said Emma Herd, climate change and sustainability partner at EY Oceania.

Industries with the biggest direct exposure to climate-related issues — such as energy and insurance — scored higher on average for quality and coverage of disclosures, EY reported.

The insurance sector’s quality score rose from 38% to 51% year on year, the consultancy found, while the energy sector increased from 48% to 51%. At the other end of the scale, the score for banks fell from 46% to 39%. The sector with the lowest quality score was asset owners and managers with 35%, although this marked a 10-percentage-point increase in 12 months.

Despite poor disclosures, 75% of respondents to EY’s survey said they had performed some kind of climate-related risk analysis for their business. However, the information gathered from this work had yet to be incorporated into many companies’ financial statements.

EY’s report suggested that finance teams may not have the expertise to assess where climate risks sit within their business models, while mismatched time horizons — long-term climate risks versus short-term financial statements — could also be a factor.

Dr Matthew Bell, EY’s global climate change and sustainability services leader, said: “Boards and senior management teams should be using their disclosures to inform their stakeholders, particularly their investors, about how they are understanding and managing their risks in practice.”