ASX100 companies ahead of global firms in acknowledging climate risks

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Australia’s top 100 companies are ahead of the world’s largest 250 firms (the G250) in multiple criteria for good climate risk reporting, KPMG international and Australian analysis has found.

A KPMG global study, Towards Net Zero, published today, sets out twelve best practice criteria for climate risk disclosures but finds less than half of G250 companies currently meet either those benchmarks, or follow the recommendations of the Taskforce for Climate-related Disclosures (TCFD), regarded globally as the gold standard for reporting on climate risk and decarbonisation.

But supplementary research by KPMG Australia finds that 58 percent of Australia’s top 100 companies are now following the TCFD – up from just 16 percent three years ago. This lead is particularly notable in acknowledging climate change as a financial risk to the business, now detailed by 78 percent of ASX100 companies, compared to 56 percent of the G250. Australia ranks second, behind only France in this respect.

ASX100 companies match global counterparts in terms of publishing climate risk and TCFD disclosures in the annual report, a separate sustainability or TCFD report. Areas where they fall behind are reporting the impacts of climate change using scenario analysis and reporting science-based targets showing how they intend to transition to net zero carbon emissions. 42 percent of the ASX100 link their reporting to the Paris Agreement’s 2-degree warming target.

Australia-based Adrian King, KPMG Global Chair of Sustainability, Climate Change and ESG Services, said: “The world has 30 years to cut carbon emissions to net zero if we are to limit global warming to 2 degrees Celsius and avoid climate change catastrophe. Business is at risk not only from the physical effects of climate change but also the financial impacts of transitioning to a net zero economy. This is now recognised by investors, lenders, insurers and companies themselves as a significant risk to their business’s financial stability. Reporting on climate risk is an essential first step.

“The COVID-19 crisis has seen calls by the IMF and others for mandatory climate risk reporting, which several countries are now bringing in, but our research shows a substantial rise in the number of large Australian companies reporting against the TCFD framework. This is very encouraging in the absence of public policy directives, and is being driven by business itself, investor demand and regulators’ calls for action. But there is certainly still a lot of room for improvement, especially in the areas of scenario analysis and science-based carbon targets.”

Criteria for best practice

In its global report, KPMG sets out 12 criteria* for best practice climate risk disclosures, grouped under four headings: governance, identification, and impacts of climate-related risks and reporting on a net zero transition. The Australian supplementary research then compares ASX100 performance against these criteria with the G250 and breaks the findings into industries.

KPMG’s 12 criteria for best practice reporting on climate risk recommends companies dedicate a clear section to climate risk and TCFD disclosures in the annual financial or integrated report, and/or publish a stand-alone climate risk or TCFD report. 32 percent of the ASX100 and 31 percent of the G250 report their climate-related information in this way. However, 27 percent of ASX100 companies put climate-related and TCFD disclosures solely in their sustainability report.

Industries and sectors

Globally, the technology, media and telecommunications sectors are out in front with respect to reporting climate change as a financial risk. In Australia, the mining sector, financial services and construction and materials most frequently acknowledge that climate change is a financial risk to their business. While these industries acknowledge climate risk, only 62 percent of mining, 50 percent of financial services, and 57 percent of the construction sectors state that they report in line with the TCFD recommendations.

UN Special Envoy for Climate Action and Finance, Mark Carney, in a foreword to the global report, said that KPMG’s analysis exposes “significant gaps that exist in reporting, particularly around scenario analysis and forward-looking metrics, and it rightly emphasises the need for rapid improvement in both the quantity and quality of disclosure.”

Following the TCFD recommended scenario analysis approach in public reporting is still relatively immature. 20 percent of ASX100 companies and 22 percent of the G250 use such analysis to model the impacts of climate change on their business. Banks, electricity, and construction and materials sectors are among the top sectors using scenario analysis in their reporting of climate risk.

Setting carbon reduction targets is another area for improvement, with 67 percent Australian companies doing so, compared to 76 percent of the G250. But far fewer set targets consistent with the climate science of keeping global warming to well below 2 degrees – 27 percent of G250 and 17 percent of the ASX100.

About the study

KPMG assessed ASX100 and G250 corporate reports from July 1, 2019 to June 30, 2020.* The 12 best practice criteria were developed covering governance of climate-related risks, identifying climate-related risks, impacts of climate-related risks and reporting on net zero transition. The criteria are based on insights from KPMG’s climate disclosure experts, combined with elements of the TCFD recommendations, other reporting frameworks and evolving best practice.

Note: base is all companies who reported sustainability information during 2019-20 (n 98). Only includes companies who state they report in-line with TCFD (58%)

Note: base is all companies who reported sustainability information during 2019-20 (n 98)