Companies told to act now on climate risk reporting ahead of mandatory regs

The head of climate and sustainability strategy at Marsh has called on companies to accelerate their climate change reporting plans and policies before the imminent arrival of new regulations.

Amy Barnes was speaking on the first day of the annual, virtual conference held by the Pan-Asia Risk & Insurance Management Association (PARIMA), which focused heavily on sustainability issues and the role played by risk managers and their insurers.

According to Barnes, sustainability-related reporting is set to dramatically increase in importance during the next few years.

The G7 committed to making it a requirement earlier this year and the UK has introduced a climate-related financial disclosure framework that requires reporting along four pillars – governance, strategy, risk management, and metrics and targets.

The US, Singapore and Japan have taken similar steps. And a number of the global accounting frameworks such as IFRS are proposing global climate reporting targets for the first half of 2022.

“Climate change is not just an environmental and societal issue, it is also an investment issue,” said Barnes. “Our changing weather can impact business operations and supply chains and change customer preferences, and climate change reporting is seen as a key step to managing these risks.”

However, a number of challenges remain for companies over the availability and consistency of sustainability-related data, acknowledged Barnes. This is especially true when applying reporting to counterparties and supply chain partners.

“It may well be relatively easy for a company to assess its own emissions and for financial institutions in particular. It is hard to assess for public companies but even harder for non-listed companies where typically there is less listed data,” said Barnes.

“Because of the complexity, companies would be well served to start preparing climate disclosures before they become mandatory,” she added.

At the same time, companies also run the risk of being penalised by investors as well as regulators over their climate risk reporting, according to Barnes. There is a policy gap for net zero that makes it really challenging to set transition plans, she said. “In some instances, we are expecting companies to move faster than governments suggest they move.”

Consequently, companies have to strike a balance between admitting the impact of these challenges on their net-zero transition plans while also maintaining investor confidence.

“Businesses need to be more honest about the challenges but if they are more honest, they could be penalised by sustainable investors who will accuse them of not being fully committed to net zero,” said Barnes.