Executives will join world leaders in calling for rapid climate action to avert a catastrophic outcome at the United Nations’ annual Climate Change Conference in Dubai from Nov. 30 to Dec. 12.
However, a new report shows the world’s largest corporations continue to lag behind their own climate commitments, in part because of the lack of regulation governing risk disclosures.
EY’s Global Climate Risk Barometer found nearly half of the 1,500 businesses examined did not disclose a transition plan to reach their commitments, pointing to a disconnect between companies’ climate pledges and their strategies to achieve those goals.
“There’s some improvements from the last time we looked, but it’s pretty insufficient for what we think is necessary for the rapid decarbonization,” Matthew Bell, EY Global Climate Change and Sustainability Services leader, told Yahoo Finance. “I think there was a big gap between aspiration and reality. And now that organizations have started either to understand the scale of the challenge or have started to understand the complexity of the transformation … they are at least I think being more transparent and reflective of where they think they will need to get to based on what they know today.”
The report comes as the UN pushes for increased scrutiny around net-zero commitments of businesses and financial institutions to avoid greenwashing, or the practice of misleading consumers and investors about a company’s environmental impact. Last year, the organization issued 10 recommendations to guide transition plans, such as alignment with science-based targets and taking a full account of all greenhouse gas emissions, including those from suppliers and customers.
According to EY’s report, companies demonstrating high-quality transition plans tended to be located in markets with stronger disclosure requirements or proposals, such as the UK, Germany, France, Spain, and the US. Meanwhile, the quality of transition plans for companies in India, China, the Philippines, and Indonesia lagged behind.
While many countries are still playing catch-up, there has been momentum behind the push for greater sustainability-related disclosures. Regulators say that creating a uniform set of international standards would ease the burden on companies that currently must navigate a patchwork of different reporting frameworks and jurisdictions.
While regulators iron out requirements, EY’s Bell noted that companies adopting science-based targets are reaching a “critical mass.” These vetted targets demonstrate a company has a credible plan in place to reduce emissions and manage the risks of transition — which is seen as crucial for net zero, particularly as the window for keeping climate change limited to 1.5 degrees of warming “has narrowed,” according to the International Energy Agency.
But that push to build out a more concrete climate action plan has also led to a delay in initial net-zero targets, according to Bell. In a separate EY survey of 500 chief sustainability officers, the firm saw companies scale back their median timelines for reaching net zero to 2050 from 2037.
“The biggest obstacle [to collecting climate data] is currently it’s not a high enough priority to start doing it now,” Josh Griffin, co-founder and chief policy officer at nZero, a climate data platform, told Yahoo Finance. “Through both market pressures and regulatory requirements, that’s changing. But the data exists to make … decarbonizing decisions.”
In the US, investors are waiting for the SEC to finalize its climate disclosure rule, which it first proposed in March 2022. In the meantime, California enacted a measure of its own that will require any large company that does business in the state to disclose its scope 1 and scope 2 emissions by 2026 and scope 3 emissions by 2027.
“There are more companies that are making the commitment [to net zero],” Griffin said. “And now regulators, lawmakers, and policymakers are starting to say, ‘OK, that’s awesome that you’re making the commitment. Now, we’re going to expect you to prove it.’”
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