11 January 2022

3 benefits of making voluntary climate-related financial disclosure before it becomes mandatory


By Cervest

3 benefits of making voluntary climate-related financial disclosure before it becomes mandatory

Extreme weather threatens the profit and longevity of businesses that fail to address climate risk. Over the past decade, the worldwide economic loss from weather-related events, such as storms, floods, and extreme heat, averaged $383m per day.

“Even as the world decarbonizes, we are still going to face increasing climate impacts, given the locked-in effects [of climate change]. So preparing for a more volatile world and understanding one’s physical risks is paramount to adapting and transitioning while we decarbonize.”

- Sachin Kapila, Cervest’s Chief Climate Risk Officer

Download the ebook for insights on how other companies are preparing to disclose their climate-related financial risks.

The losses don't just apply to remote areas of the planet. The Cervest 2021 Climate Intelligence Outlook found that nearly 90% of UK and US businesses have had at least one of their physical assets affected by extreme weather events. As climate change causes our weather to become more volatile, these events will become increasingly regular.

Why report on climate risk before it becomes mandatory

Although it is currently voluntary, governments from across the globe are working to make climate-related financial disclosure mandatory. TCFD-aligned climate-related financial disclosure is already being put in place in the UK. This April, it will become mandatory for companies with over 500 employees and a turnover in excess of £500m to disclose their climate risk. By 2025, the rest of the UK economy will be required to do the same. President Biden ensures that the US is not too far behind after issuing an executive order in May 2021.

Identifying, analyzing, and reporting on climate risk and opportunities is the first step businesses can take to become climate-resilient. Your business does not have to wait until climate-related financial disclosure is made mandatory to reap the benefits of climate risk reporting.

1. Developing a competitive advantage

Businesses can turn reporting on climate risk into an opportunity. Climate Intelligence allows them to identify stranded assets, fortify and build resilience for the most vulnerable assets throughout their supply chain.

Pioneering businesses can also use reporting to discover untapped opportunities, such as new primary locations for future assets. Only once the risks are surfaced and shared can businesses and governments take coordinated, effective action.

2. Building climate literacy

The CPD, the not-for-profit organization that runs the global disclosure system, reports that only 2% of the 13,000 voluntary disclosures received this year received an A grade. Those that make it onto the A-List are recognised as leading the way to a net-zero, nature positive and equitable future.

Implying that 98% don’t fully understand the impacts of climate change on their business and are therefore susceptible to them. Thirty-eight percent of companies we surveyed cite insufficient understanding of what the data means as a barrier to climate-related financial disclosure

Reporting early on climate risk will mean your business can start building up greater climate literacy, and understand how your network interacts with climate change. Therefore, when it comes to publishing your climate disclosure, you can be confident that the data you disclose is accurate and won’t result in any penalties.

3. Greater confidence from investors

This year the number of climate disclosures jumped by 40% as a result of both investor and policy pressure on boards to disclose. Our survey finds that over three-quarters of decision-makers in US and UK businesses said that current and potential shareholders and investors are already factoring climate risk into their investment decision-making.

Despite this, recent research from Carbon Tracker and CAP found 70% of companies are still failing to share their climate risk in their financial reports. Climate disclosure or no climate disclosure, choosing not to recognize and report on climate change impacting your business is a red flag for an investor looking for a good ROI for their financial capital.

Navigating climate-related financial disclosure

In light of COP26, Cervest surveyed more than 800 US and UK decision-makers responsible for climate strategies, to gauge climate risk literacy and disclosure preparedness. Our survey reveals that businesses were highly motivated to adapt to climate change, but were under-prepared for disclosing their risks in line with the upcoming regulations.

We delve deep into insights we found from speaking to these decision-makers, and how businesses need to consider how they can use the reporting required by mandatory disclosure to their advantage.

Download the disclosure ebook for the complete insight.

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