Companies globally are making progress with their climate disclosures, both in terms of the number of businesses reporting on climate-related factors and the quality of the reporting, according to a new study released by global professional services firm EY, although the improvements are only “marginal,” and significant work remains to prepare for reporting against the new sustainability disclosure standards released by the IFRS Foundation’s International Sustainable Standards Board (ISSB).

For the report, EY’s fifth annual Global Climate Risk Barometer, EY analyzed the disclosures of more than 1,500 companies across 13 climate risk-exposed sectors and 51 countries.

Key aspects of disclosure examined in the report included “Coverage,” based on the number of Task Force on Climate-Related Financial Disclosures (TCFD) recommendations addressed by companies, and “Quality,” or the extent to which disclosure meets requirements of the 11 TCFD recommendations.

The report found a continued increase in the quantity of climate disclosure by companies, with the Coverage metric reaching 90% in this year’s survey, compared with 84% last year, and only 70% in 2021. Quality scores, on the other hand, continue to lag at 50%, while improving from 44% last year and 42% in 2021.

By sector, the report indicated that those with the greatest exposure to climate-related transition risk tended to post higher disclosure scores, both in terms of coverage and quality. The energy sector, for example, received the highest scores among for coverage (95%) and quality (55%), with other strong non-financial performers including the materials & buildings and mining sectors. Within the financial industries, the insurance sector scored the highest, with a coverage score of 93%, and quality reaching 55%.

For the first time, the report examined companies’ readiness for meeting the requirements of the IFRS Foundation’s climate reporting standard, IFRS S2. The IFRS Foundation’s ISSB released their inaugural general sustainability reporting standard (IFRS S1) and IFRS S2 in June 2023, and the new standards are expected to inform emerging disclosure requirement systems from many regulators globally, beginning as soon as next year.

Assessing company disclosures across the four main pillars of IFRS S2, which include governance, strategy, risk management, and metrics and targets, the reports assessment was decidedly mixed, indicating stronger scores in governance categories, with nearly 60% of companies disclosing on skills and competencies to oversee strategies and on how committees are set up to oversee target setting, but much lower in risk management, with only 3% disclosing “information pertaining to changes in process used to identify climate-related risks prior to the reporting period.” Strategy and metrics and targets was also mixed, with 65% of companies disclosing progress against previously set targets, and 54% disclosing on Scope 3 emissions categories, but only 5% disclosing on quantitative/qualitative information impacting financial planning, and 12% disclosing emissions details on legal entities.

The report also examined disclosures around transition planning, one of the key aspects of IFRS S2, finding that only around half (53%) of companies disclose a specific net zero strategy, transition plan or decarbonization strategy. More highly-exposed sectors again were found to be in the lead on this metric, with 60% of energy and mining companies and 58% of transportation companies disclosing transition plans. Lagging sectors included financial asset owners and managers at 39% and agriculture, food and forest products at 43%.

Other notable findings in the report included indications that companies are more focused on risks than opportunities in their climate reporting, with 77% of companies assessed having conducted analysis on risk compared to 68% on opportunities. The report also found that companies are still lagging on disclosing the links between climate impact and financial performance, with only 33% of companies referencing climate-related matters in their financial statements, and only 26% providing quantitative impacts of climate-related risks in financial statements.

Dr. Matthew Bell, EY Global Climate Change and Sustainability Services Leader, said:

“At a time when we should significantly ramp up our transitioning to a net-zero economy if we are to meet our climate commitments, this year’s EY Global Climate Risk Barometer indicates that there is a concerning disconnect between the stated climate ambitions and the corporate actions to achieve them.

“Climate risk disclosure should not be viewed as a separate tick box exercise, but as an opportunity to inform wider commercial strategy and gain competitive advantage.”

Click here to access the report.