As CSR has risen to priority in the C-suite and boardroom, corporate responsibility reporting has grown by leaps and bounds over the last few years at many companies. New research from professional services firm KPMG International examines how these reports have evolved—and one glaring omission from at least half of these global reports.
Despite guidance from regulators and increasing pressure from investors on companies to disclose climate-related risks in financial filings, 51 percent of U.S. companies in the largest 250 global companies by revenue (G250) do not acknowledge the financial risks of climate change in their annual reports, according to the newly released Survey of Corporate Responsibility Reporting 2017. The number is similar for the largest 100 U.S companies by revenue (N100), at about 47 percent.
In addition, none of the U.S. G250 or N100 companies that do recognize these risks quantify them in financial terms or model the potential financial impact on their business using scenario analysis.
“Companies have traditionally focused on sharing the corporate responsibility measures they have taken in their reporting, such as how much carbon they have reduced, rather than quantifying the financial impact of these measures,” said Katherine Blue, leader of KPMG LLP’s Sustainability Service Network in the U.S., in a news release. “Shareholder and regulatory pressure to communicate such impacts is intensifying and companies should focus their reporting on explaining how their corporate responsibility measures will impact business performance.”
The Financial Stability Board Task Force on Climate Related Financial Disclosures (TCFD), which was formed in 2015, submitted recommendations in July 2017 to the G20 focusing on the disclosure of physical risks from extreme weather, and commercial resilience risks related to a global transition to a lower carbon economy. And, in the U.S., the SEC since 2010 has required disclosure related to climate change in SEC filings. As a result, pressure is growing on companies to improve their disclosure of climate-related financial risk. While the U.S. N100 companies rank fourth (behind Taiwan, France and South Africa) regarding the percentage of those that mention climate-related risks in their financial reports, there is room for growth.
Weak ties to sustainable development goals
Only 25 percent of the U.S. N100 and 31 percent of the U.S. G250 that report on corporate responsibility link business activities to sustainable development goals (SDGs). The global N100 average of SDG reporting is 39 percent. In 2015, countries adopted a set of sustainable development goals to end poverty, protect the planet, and ensure prosperity for all as part of a new sustainable development agenda. Each goal has specific targets to be achieved over the next 15 years.
Taking aim at carbon targets
Sixty-seven percent of the G250 reporting companies disclose targets to cut carbon emissions, up from 58 percent in 2015. U.S. companies in the G250 have seemingly stepped up efforts to reduce carbon emissions with 85 percent of reporting companies setting such targets.
Corporate responsibility reporting becoming the norm
Ninety-two percent of the U.S. N100 reported on their corporate responsibility/sustainability performance in 2017, up from 87 percent in 2015. And, 81 percent of the U.S. N100 include mention of corporate responsibility/sustainability information in annual reports, eclipsing the global N100 average of 57 percent.
The KPMG Survey of Corporate Responsibility Reporting 2017 studied the annual financial reports and corporate responsibility reports published by the top 100 companies by revenue in each of 49 countries (N100) and the 250 largest companies in the world by revenue (G250).