Assess

material and systemic climate risks

Assess material and systemic climate risks

While many large companies have robust risk management systems in place, too often climate-related risks are siloed or considered separately from other financial risks. This is short sighted. Rather than viewing wide-ranging climate risks as niche environmental issues, they should be treated as core financial risks with potentially material implications, whether from physical impacts, transition risks, or other socio-economic ripples. 

The Ceres Blueprint for Responsible Policy Engagement on Climate Change calls on companies to assess systemic climate-related risks using well-established internal processes, including enterprise risk management systems, materiality analyses, and robust climate scenario assessments.
 

74% (71 of the 96 U.S. companies assessed) acknowledge that climate change poses a material risk to their enterprises.

 

 46% acknowledge that they are impacted by both the physical and transition risks of climate change

 16% disclose solely physical climate risks

 12% disclose solely transition climate risks

 26% do not identify climate change as a material risk

However, 26% of the large public U.S. companies assessed still do not make any reference to climate change in their financial filings—a state of play that is at odds with growing investor and regulatory focus on climate change as a systemic risk.

More than half, or 51% (49 of the 96 companies assessed), identify climate policies as something that could negatively affect the organization.

While the data on the face of it seems to indicate that a preponderance of large U.S. companies are starting to come to terms with the significant impacts posed by climate change to their business, the details of the disclosure in financial filings reveals a more complex picture. Examples of narrative language in financial filing describing climate change policy include “Increased regulation of GHG emissions could impose significant additional costs” or “Climate change and further regulation of greenhouse gas emissions may adversely affect the company’s operations or results.”

The persistence of these types of disclosures seems to indicate that companies are still focused on the short-term compliance costs of climate policies, rather than the longer term and much larger costs of unabated climate change on businesses. Given the importance of science-based policy to address climate risks, companies should change this narrative and approach science-based climate policies as a positive force for their enterprises, providing important policy certainty for future investments, as well as a roadmap for resilient operations.
 

It is important to keep in mind that affirmations of materiality in financial filings present a limited picture of the robustness of corporate climate risk management efforts. A growing number of companies are starting to conduct climate change scenario analyses—assessing the resilience of their business models against a range of climate change impact baselines. Most of the companies that we assessed had performed some kind of climate change scenario analysis, indicating the growing acceptance of this practice among large U.S. companies, including through a TCFD report. However, as there is a lack of consistency on scenarios used and resultant disclosures, we were unable to compare corporate approaches across our focus companies. Therefore, this indicator is not included in our dataset.