Companies not noting financial risk of climate change | KPMG | NZ

Three quarters of companies worldwide yet to acknowledge climate change as a financial risk

Companies not noting financial risk of climate change

Almost three quarters of large and mid-cap companies worldwide do not acknowledge the financial risks of climate change in their financial reports.

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Almost three quarters (72 percent) of large and mid-cap companies worldwide do not acknowledge the financial risks of climate change in their annual financial reports, according to the KPMG Survey of Corporate Responsibility Reporting 2017 published today.

Of the minority that do acknowledge climate-related risk, less than one in 20 (4 percent) provides investors with analysis of the potential business value at risk.

KPMG's survey studied annual financial reports and corporate responsibility reports from the top 100 companies by revenue in each of 49 countries: a total of 4,900 companies.

It found only five countries in the world where a majority of the top 100 companies mention climate-related financial risks in their financial reports: Taiwan (88 percent), France (76 percent), South Africa (61 percent), US (53 percent) and Canada (52 percent). In most cases, disclosure of climate-related risk is either mandated or encouraged in these countries by the government, stock exchange or financial regulator.

In terms of industries, companies in the Forestry & Paper (44 percent), Chemicals (43 percent), Mining (40 percent) and Oil & Gas sectors (39 percent) have the highest rates of acknowledging climate-related risk in their reporting. They are closely followed by the Automotive (38 percent) and Utilities (38 percent) sectors. Healthcare (14 percent), Transport & Leisure (20 percent) and Retail (23 percent) are the sectors least likely to acknowledge climate risk.

When looking specifically at the world's 250 largest companies (G250), public acknowledgment of climate-related financial risk is more common but still far from universal. French-based multi-nationals lead with 90 percent acknowledging climate-related risk, followed by majors headquartered in Germany (61 percent) and the UK (60 percent).

Around two thirds of G250 companies in the Retail (67 percent) and Oil & Gas (65 percent) industries acknowledge the risk but only around one third (36 percent) of major Financial Services firms do so. However, the research found only six G250 companies that have informed investors of the potential financial impact of climate risk through quantification or scenario modelling.

KPMG's Global Head of Sustainability Services, José Luis Blasco, said:

“Our survey shows that, even among the world's largest companies, very few are providing investors with adequate indications of value at risk from climate change. Our findings support the need for initiatives like the Financial Stability Board's Task Force on Climate-related Financial Disclosures (TCFD) that aim to improve corporate disclosure of climate-related risk.

“Pressure on firms to up their game on disclosure is growing by the day. Some investors are already taking a hard line approach to demanding disclosure; some countries are considering regulation to mandate it; and some financial regulators have warned that failure to identify and manage climate risk is a breach of a Board's fiduciary duty. In this context, we encourage firms to move quickly. Those that don't could very soon start to lose investors and find the cost of capital and insurance cover escalates quickly.”

KPMG's survey also explored further trends in corporate responsibility reporting including reporting on the UN's Sustainable Development Goals (SDGs), reporting on human rights and reporting on carbon reduction targets.

Key findings include:

  • The UN SDGs - a set of 17 global goals to end poverty, protect the planet, and ensure prosperity for all - have resonated strongly with businesses worldwide in less than 2 years since their launch at the end of 2015. More than one third (39 percent) of the 4,900 reports studied in KPMG's survey connect companies' corporate responsibility activities to the SDGs. That proportion rises to over 40 percent (43 percent of reports) when looking specifically at the world's 250 largest companies (G250). 
  • Around three quarters of company reports (73 percent) across the 49 countries recognize human rights as a corporate responsibility issue the company needs to address. This rises to nine out of 10 reports (90 percent) in the G250 group of companies. Companies based in India, the UK and Japan are the most likely to acknowledge the issue of human rights, as are companies in the Mining sector.
  • Two thirds of reports (67 percent) from the world's 250 largest companies disclose targets to reduce the company's carbon emissions. However, the majority of these reports (69 percent) do not align the company's targets to the climate targets being set by governments, regional authorities (such as the EU) or the UN.

José Luis Blasco said:

“It is not only employees, communities and NGOs who take an interest in corporate responsibility and sustainability issues. Investors are also increasingly aware that topics previously considered “non-financial” can have a material impact on a business's ability to build and protect value both in the short-term and the long-term. Companies therefore need to understand the latest trends in reporting and ensure their own reports meet the expectations of a wide range of stakeholders.”

Download the KPMG Survey of Corporate Responsibility Reporting 2017 from www.kpmg/com/crreporting

For further information, please contact:

Mark McKenzie, Director, KPMG Center of Excellence for Sustainability Services

mmckenzie@kpmg.com +31 6 4676 1884

Madeleine Karn, Assistant Manager, KPMG Center of Excellence for Sustainability Services

madeleine.karn@kpmg.co.uk +44 7780 222910

About the survey

KPMG has published The KPMG Survey of Corporate Responsibility Reporting since 1993. The 2017 survey is the 10th edition. Professionals at 49 KPMG member firms carried out thousands of hours of research for this survey. They reviewed annual financial and corporate responsibility reporting by the largest 100 companies, by revenue, in their own country.

Research sources included PDF and printed reports as well as web-only content published between 1 July 2016 and 30 June 2017. If a company did not report during this period, reporting from 2015 was reviewed. However, no reporting published prior to June 2015 was included in the research for this survey. The survey findings are based on analysis of publicly available information only, and no information was submitted directly by companies to KPMG member firms. The survey refers to two research samples:

The N100 - the largest 100 companies in each of 49 countries: 4,900 companies in total.

Professionals at KPMG member firms identified the N100 in their country based on a recognized national source, or where a ranking was not available or was incomplete, by market capitalization or another appropriate measure. All company ownership structures were included in the research: publicly-listed and state, private and family-owned.

The G250 - the largest 250 companies in the world.

The G250 was identified as the top 250 companies listed in the Fortune Global 500 ranking for 2016. The G250 is for the most part a subset of the N100 research sample. Seven companies in the G250 sample are not included in the N100.

The 49 countries that participated in the 2017 survey were as follows:

  1. Angola
  2. Australia
  3. Austria
  4. Belgium
  5. Brazil
  6. Canada
  7. Chile
  8. China
  9. Colombia
  10. Cyprus
  11. Czech Republic
  12. Denmark
  13. Finland
  14. France
  15. Germany
  16. Greece
  17. Hungary
  18. India
  19. Ireland
  20. Israel
  21. Italy
  22. Japan
  23.  Kazakhstan
  24. Luxembourg
  25. Malaysia
  26. Mexico
  27. New Zealand
  28. Nigeria
  29. Norway
  30. Oman
  31. Peru
  32. Poland
  33. Portugal
  34. Romania
  35. Russia
  36. Singapore
  37. Slovakia
  38. South Africa
  39. South Korea
  40.  Spain
  41. Sweden
  42. Switzerland
  43. Taiwan ROC
  44. Thailand
  45. The Netherlands
  46. Turkey
  47. United Arab Emirates
  48. UK
  49. US

About KPMG International

KPMG is a global network of professional services firms providing Audit, Tax and Advisory services. We operate in 152 countries and have 189,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

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