Most Companies’ Financial Reports Don’t Mention Climate Risks

By Andrea Vittorio

Almost three-quarters of companies worldwide don’t include the risks climate change could pose to their business in their annual financial reports, according to new research from KPMG International.

Of those that do recognize climate-related financial risks, most companies describe potential impacts. But very few of the 4,900 companies studied quantify those impacts in financial terms or model them using scenario analysis.

Some of the world’s largest investors lately have thrown their weight behind efforts to get companies such as Exxon Mobil Corp., Occidental Petroleum Corp., and PPL Corp. to publish a detailed analysis of how carbon curbs could affect them financially.

Companies also are under pressure to boost their financial reporting on climate change based on recent recommendations from a panel formed by the Financial Stability Board, which advises the Group of 20 nations. The panel of climate data users, data preparers, and others was led by Michael Bloomberg, founder and majority owner of Bloomberg L.P., of which Bloomberg BNA is an affiliate.

Change in Approach

Most companies are disclosing efforts to lessen their climate impact by cutting carbon emissions, the KPMG study found. It said changing companies’ approach to focus more on how climate change could impact them requires shifting the responsibility for such reporting.

“Traditionally, thinking about climate change has been the function of corporate responsibility or sustainability teams,” Wim Bartels, a partner at KPMG in the Netherlands and a member of the FSB panel, said in the report. “But now the responsibility needs to sit with the executive who has the best understanding of a company’s financial risks and opportunities—namely the CFO.”

The audit, tax, and advisory firm’s study showed that climate reporting rates differ by country. A majority of the biggest 250 companies by revenue in France, Germany, and the U.K. disclose climate change as a financial risk. Just under half of those based in the U.S. and Japan do so.

Climate risk reporting also differs by sector. Companies involved in forestry, chemicals, and mining more often disclose climate risk in financial reports than those in other sectors, such as financial services and retail.

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