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Top corporate polluters fail to disclose climate risks: report

16 September 2021 IHS Markit Energy Expert

Most large corporate emitters have failed to disclose the effects of climate risks in their 2020 financial statements despite net-zero pledges by many of them, according to a study released 16 September.

The analysis was conducted by the financial think-tank Carbon Tracker in collaboration with the Climate Accounting Project (CAP), an informal team of accounting and finance experts.

For the study, researchers reviewed the 2020 filings of 107 carbon-intensive companies, including 94 identified as either having significant carbon footprints or as crucial to the energy transition, or both, Carbon Tracker said.

More than 70% of the companies reviewed did not provide evidence that they had considered climate in their financial statements, or any indication as to why such matters might not be significant to their businesses, the think tank said.

"Based on the significant exposure these companies have to transition risk, and with many announcing emissions targets, we expected substantially more consideration of climate matters in the financials than we found," Barbara Davidson, senior analyst at Carbon Tracker and lead author of the report, said in a statement accompanying the study.

"Without this information there is little way of knowing the extent of capital at risk, or if funds are being allocated to unsustainable businesses, which further reduces our chances to decarbonize in the short time remaining to achieve Paris [Agreement] goals," she added.

Carbon Tracker said the study covered a range of sectors including oil and natural gas, transportation, utilities, consumer goods and services, and industrials.

The report comes amid growing skepticism about corporate climate pledges, which has been dubbed "greenwashing" by environmental activists.

To address problems highlighted in the report, Carbon Tracker recommended companies disclose forward-looking estimates and assumptions to show how they are taking climate-related risks into account.

It also urged auditors to ensure that the financial statements are consistent with other company disclosures about climate-related matters.

In addition, Carbon Tracker said, regulators should, as part of their supervisory/enforcement reviews, identify inconsistencies and audit failures, and ensure that they are addressed.

Of the 107 companies reviewed, 41% were based in Europe, 37% in the US and Canada, 14% in Asia, and 8% in emerging markets.

Spotlight grows brighter

The spotlight on the discrepancies between net-zero promises and actions is growing, with polluters not the only targets.

UK-based activist investor non-profit ShareAction found the 25 largest European banks have not committed to absolute emissions reductions in their net-zero plans and do not have clear plans to cut their financing of fossil fuels, including coal.

A September report by the group singled out some of the banks as net-zero leaders, but found that, overall, few banks pledging net-zero emissions had promised to take "concrete steps" such as interim targets for emissions in projects they finance, absolute emissions reduction targets, or absolute emissions disclosures.

Only five of the net-zero-committed banks had an interim target for emissions reductions prior to reaching net zero by or before 2050. Such targets serve to hold the banks to account and ensure final targets can realistically be reached.

Regulatory scrutiny

Regulators are also eyeing companies' climate risk disclosure, with scrutiny ramping up during the summer.

Switzerland's highest decision-making body in August gave the country's agencies the green light to begin writing mandatory climate risk disclosure rules for the country's large public companies, banks, insurance companies that could take effect as early as 2024.

The Swiss Federal Council, which is composed of seven elected members, approved on 18 August parameters for upcoming disclosure rules that would impose what it called "double materiality" and would apply to least 200 companies, each with at least 500 employees and at least $21.8 million in assets.

US Securities and Exchange Commission (SEC) member Elad Roisman told Net-Zero Business Daily the agency should consider requiring sector-specific climate disclosures from publicly traded companies rather than a blanket requirement as it crafts a rule to mandate such reporting.

Roisman, a Republican, is one of five SEC commissioners who will vote on the climate change disclosure proposal when it is presented to the commission at the year's end. Announcing the timing of the proposal's release, SEC Chairman Gary Gensler in late July said the agency action responds to investors clamoring for material information about the risk that a changing climate poses to companies whose debt or stock they own or wish to buy.

Meantime, across Washington, the US Department of Treasury's insurance arm at the end of August sought comment on its role in collecting data and taking action on risks that the insurance sector faces as losses from climate-related disasters reach into the billions.

--Based on original reporting by Abdul Latheef, OPIS.

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