Three Steps for Navigating Climate Disclosure Risks and Opportunities

Boards can help their companies win over investors and consumers increasingly focused on how organizations are managing the impacts of climate change.

The global landscape for climate disclosures is shifting rapidly. As investor demand for this information continues to grow, companies lagging in their reporting risk losing market competitiveness and attractiveness to investors, employees and customers, as well as facing increased compliance issues. With the onset of requirements in the European Union and the United States, corporate boards that want to meet market demand for transparency must prepare now by understanding how climate disclosure helps their company, which requirements apply to their business and what action plan their companies need to adopt to meet these requirements.

Step 1: Understand How Standardized Disclosure Benefits Companies  
Climate risks, whether physical or transition, are financial risks. In the U.S., physical risks from weather and climate disasters have already cost nearly $2.7 trillion since 1980, with a record high of 28 separate billion-dollar disasters in 2023. Transition risks — changes in policy and regulation, technology or consumer preferences — are also soaring. Climate disclosure is a key tool that helps boards assess their companies’ exposure to that risk.

Climate disclosure also allows companies to become more competitive, innovative, resilient, transparent and attractive to investors. Institutional investors already use third-party data to analyze performance and spend an average of $1.4 million annually to acquire and analyze it. But what they really want is to be able to do apples-to-apples comparisons across global markets, which is why investors have consistently called for standardized climate risk disclosure, including hundreds of investors representing $68 trillion in assets in the Climate Action 100+ benchmark, as well as those who signed the Global Investor Statement and the collective statement to the SEC.

Consequently, it is imperative for companies to consistently furnish this data directly to their investors, and nearly 800 businesses agree. Given all this, it's critical for boards to ensure that their companies aren't just prepared for the upcoming disclosure regulations, but also have the right oversight and systems in place for assessing and managing climate-related risks and opportunities.

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According to Tom Lyon, professor at the University of Michigan Ross Business School and co-faculty leader, “The bottom line is that investor demand for climate risk information from the companies they invest in will only get stronger. The best thing a board can do is fully recognize the benefits of standardized disclosure and integrate it deeply into your business strategy and governance.“

Step 2: Learn About the New Disclosure Landscape and Requirements
After decades of investor demand, we are seeing mandatory climate disclosure requirements replacing voluntary standards in many regions. There are four main disclosure requirements that directors of companies operating in the U.S. or with significant operations in the EU should be aware of: the EU's Corporate Sustainability Reporting Directive (CRSD), the SEC's proposed climate disclosure rule (which will be finalized this year), two California climate disclosure laws and the IFRS's International Sustainability Standards Board (ISSB) standards for climate- and sustainability-related disclosures. While the first three are mandatory, boards need to take the ISSB’s standards into account because they are forming a global baseline that the United Kingdom, Canada, Japan and several other countries have signaled that they intend to incorporate into their national laws.

Chart on the climate disclosure landscape

Step 3: Create a Plan to Meet Disclosure Requirements

After understanding the disclosure reporting requirements and how they apply to a company, directors should ensure that their companies create a plan for meeting these requirements, including securing the financial and human resources needed to produce high-quality disclosures. Companies need to identify team members from key departments including risk management, financial, accounting, legal and sustainability to lead an internal task force on climate disclosure. Review the Task Force on Climate-Related Financial Disclosure Recommendations and the GHG Protocol standards.  Directors should instruct their companies' leadership to engage their trade groups on why and how measuring and disclosing climate risks is good for business. Finally, directors need to confirm that their companies are mapping and measuring their company's greenhouse gas footprint and developing science-based targets to reduce emissions, including supply chain emissions.

By understanding how climate disclosure is important for their companies, learning about the disclosure requirements impacting their business and creating a plan to meet these requirements, astute boards will help their companies win over investors and consumers increasingly focused on how organizations are managing their climate risks. Directors with a keen eye intent on keeping their companies ahead of competitors would do well to prepare now for a world where transparency of climate risks and opportunities is the norm.

About the Author(s)

Holly Li

Holly Li is the program director for Net Zero Finance for the Ceres Accelerator for Sustainable Capital Markets.


Randi Mail

Randi Mail is the director of campaigns for the Ceres Accelerator for Sustainable Capital Markets.


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