World’s biggest emitters still fail to disclose climate-related business risks

Most of the world’s largest corporate emitters are still failing to properly assess and disclose how climate-related risks are likely to affect their business.

Only 40% of the 140 companies tracked by Climate Action 100+ (the investor-led coalition recently left by several high-profile firms) are providing information on how a changing climate and all its consequences could impact their financial performance. This is up from 35% last year, but still deemed insufficient by financial think tank Carbon Tracker, which produced today’s report.

The companies analysed include oil and gas majors such as BP, Chevron and TotalEnergies, as well as airlines, miners and large manufacturers.

“These companies have significant exposure to climate and transition risks and most have emissions reduction targets. Such matters can materially impact their businesses, balance sheets and cash flows. Investors and regulators urgently need information about how companies are reflecting this in their financial statements today,” said Barbara Davidson, Carbon Tracker’s Head of Accounting, Audit and Disclosure.

HSBC annual report: data limitations prevent full disclosures

This lack of transparency is then reflected in financiers’ own climate risk assessments: in HSBC’s annual report published yesterday (February 21), the banks states that it does not “fully disclose impacts from climate-related opportunities on financial planning and performance, including on revenue, costs and the balance sheet, quantitative scenario analysis, detailed climate risk exposures for all sectors and geographies or physical risk metrics”, due to “data limitations”.

The lack of reliable data presents significant risks for investors, adds Davidson: “If management and investors are basing their decisions on incomplete or incorrect information, such as potentially overstated assets and profits and understated liabilities, then investors, including pension funds and retail shareholders, risk significant financial loss in the face of a disorderly energy transition.”

Climate-related business risks: ‘More regulatory intervention necessary’

Climate Tracker notes that most of the world’s accounting standards require this type of material information, as well as key assumptions made in accounting, to be disclosed. But since the percentage of large firms reporting on climate risks continues to stall, the think tank suggests that more regulatory intervention may be necessary “to ensure accounting and audit requirements are upheld”. 

Regulation does appear to make a difference in climate reporting, with European firms (subjected to more rigorous regulatory requirements for transparency) disclosing potential impacts more readily than their European counterparts. For example, BP Eni, Shell and TotalEnergies all disclosed the oil and gas price assumptions used in their upstream asset impairment tests, while ExxonMobil and Chevron stated this information was “proprietary”.