Companies globally fail to put their climate change strategies into action

EY (Ernst & Young) published the 2023 version of the Global Climate Risk Barometer, which reveals the work carried out by companies around the world in the field of climate change. In the report prepared by EY by examining 1500 organizations in 51 countries; The commitments of companies on climate change, the scope and details of these commitments, as well as the statements they make to the public about the process are scrutinized. According to the report; Companies are inadequate to address climate change strategies institutionally, put these strategies into action and explain their plans.

The fifth Global Climate Risk Barometer report prepared by the international consultancy, audit and tax company EY (Ernst & Young) has been published. The information contained in the report is examined on the basis of 11 basic recommendations determined by the “Task Force on Climate-related Financial Disclosures (TCFD)”, which was established to encourage the reporting of climate-related financial data. The Barometer evaluates companies in terms of scope and quality.

Companies fail to announce plans to support climate commitments

This year’s report reveals a deep disconnect between organizations’ climate commitments and corporate strategies. According to the report; Although almost half (47%) of the companies participating in the study announced their climate commitments, they did not disclose the road map to implement these commitments. 74% do not include the measurable impacts of climate risk in their statements about climate change strategies, which reveals the fact that the issue is not valued enough at the institutional level.

Barometer evaluates companies’ statements regarding climate change both in terms of quantity and scope. Accordingly, while there is progress in the rate of companies sharing their statements (84% in 2022, rising to 90% in 2023), the scope of shared statements remains at a relatively low level of 50 percent. It has been determined that only +6% improvement has been achieved in this regard on an annual basis.

When compared between countries, the United Kingdom (66%), Germany (62%), France (59%), Spain (59%) and the USA (52%) stand out for the most detailed and comprehensive explanations about climate. India (36%), China and the Philippines (both 30%) and Indonesia (22%) are cited as needing significant improvement. At this point, it seems that countries need to prepare for the requirements set out in the International Sustainability Standards Board (ISSB) regulations. However, markets without climate-related disclosure requirements are driving the average down, and it is stated that averages will remain low until this situation is resolved.

Corporate performance

According to the barometer; The extent to which climate-related risks and opportunities are reflected in companies’ financial statements; It is an indicator of a company’s understanding of climate change. Only one in three companies surveyed discloses quantitative or qualitative links between climate risks and their impact in their financial statements. This shows that climate risk and impact are not taken into account equally within the scope of financial performance. Additionally, 42% of surveyed companies fail to conduct scenario analysis for the company’s value chain and broader market dynamics. Most companies that still do not address climate change as part of business growth are more likely to disclose risks (77%) than to disclose their strategies for climate-related opportunities (68%). Companies that understand the link between climate risk and business growth strategy are in a better position to meet new climate-related reporting requirements such as International Financial Reporting Standards (IFRS) S2.

Transition planning

Almost half (47%) of companies surveyed do not explain how they will align their business models and operations with their climate commitments. The level of detail of the companies that announced their plans (53%) is limited. Among the sectors most exposed to climate risk, the energy (60%), mining (60%), transportation (58%), telecommunications and technology (57%) sectors have the most detailed plans, while the agricultural sector lags behind in this regard. Only 43% of respondents from the agricultural sector announce a climate transition plan.

Three measures that companies should take urgently

The EY Global Climate Risk Barometer lists three critical actions that companies must take urgently:

Turn intent into action: At top-performing companies, climate risk adaptation is seen as an actionable opportunity. The climate change strategy prepared in detail and meticulously in these companies is announced to the public and put into action.

Ensure data management for a low-carbon future: Data should be collected, integrated into risk management, drive carbon reduction to drive actions and reduce emissions, Implement effective governance structures to use and manage data in a way that is always integrated into strategic and operational risk management.

Leverage the board of directors for transformation: Climate data should be used at the board level to inform corporate strategy. Leaders take a holistic approach to climate impact across the entire organization; It should go beyond basic adaptation in its climate change efforts and use the decarbonization agenda as the driving force of its future strategy.

EY Turkey Climate Change and Sustainability Services Leader Ece Sevin made the following evaluations about this year’s EY Global Climate Risk Barometer: “This year’s EY Global Climate Risk Barometer; It demonstrates a disconnect between stated climate targets and corporate actions to deliver them, at a time when we need to significantly accelerate our transition to a net-zero economy. Disclosure of climate risk; It should not be viewed as a separate approval item, but as part of a broader strategy and an opportunity to gain competitive advantage. This can be a crucial opportunity, especially for leaders who need to embrace and deliver real change. Businesses must move from a commitment mindset to an action plan where decarbonization strategies are implemented across their operations.”