Reporting on the race towards net zero Reporting on the race towards net zero
If we are to avoid the worst impacts of climate change, greenhouse gas emissions will need to be reduced drastically. A large alliance of countries, cities, businesses and other stakeholders has already committed to achieving net zero emissions by 2050 at the very latest. And the movement is growing. As impacts on companies and – ultimately – investors increase, there is also more pressure to make the measures and progress transparent through better reporting.
Which pathway are you on?
The commitment of companies to reduce carbon emissions is crucial in the fight for a future we want. Business is responsible for a large part of the world’s emissions. Also, business will be affected heavily by the impacts of climate change, depending on which pathway global emissions follow and the resilience of companies in a changing environment. Against this background, effective decision-making depends on transparency in an organization’s climate-related risk exposure, taking into account possible scenarios and strategic responses to them. At the same time, companies are under increasing pressure to provide information to their investors and other stakeholders.
What is the current status of climate-related reporting on a global level?
As KPMG’s recent report "Towards Net Zero" observed, more than half the G250 publicly acknowledge climate change as a financial risk. It is also remarkable that one in five of the world’s largest 250 companies already has a net zero emissions targets in place. Considering that disclosing climate-related risk is a relatively new practice, these results are already quite encouraging. However, some areas of reporting need to be further improved. Experience shows that companies struggle to implement certain aspects. This is particularly true for the impacts of climate-related risks in various scenarios, and the description of strategy applied to achieve a company’s carbon reduction targets.
Where is Switzerland heading?
Swiss companies are currently lagging with just 34% of companies acknowledging climate change as a financial risk to business. Of those, 70% have defined targets clearly linked to global, national or regional targets. However, the reporting landscape is evolving quickly. Investors will put more pressure on as the financial risks of climate change become clearer. The regulatory environment might change as well. Apart from new EU rules, like those deriving from the EU Action Plan, additional Swiss legislation is set to become a reality sooner rather than later. If the Swiss electorate reject the responsible business initiative (Konzernverantwortungsinitiative) at the polls at the end of November, Parliament’s counterproposal will bring in new non-financial reporting requirements for many companies. The amended article 964 of the Swiss Code of Obligations would explicitly require companies to report on their carbon emission targets. The number of reporters would increase rapidly in light of this new legal requirement.
What should you consider?
To retain access to finance, establish trust with stakeholders and remain compliant with regulatory requirements, companies simply can’t afford to ignore investors’ demand for information on climate-related risks. Credibility will be key. This means that companies will have to make serious efforts to identify risks and opportunities from climate change, define responsibilities and set mitigation strategies. Last but not least, those efforts will need to be made transparent. Companies may find it helpful to refer to the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD), a useful framework for aligning reporting to investors’ needs.
Ultimately, the earlier business leaders start to consider their net zero strategy and approach to non-financial reporting, the sooner they can make a positive impact – on the environment and their own business success.
